Thursday, March 01, 2012
As our regular readers know, we are founder members of the growth and recovery bull camp, but they will also know that we have been looking for a turn, which we feel is due for psychological and technical reasons. We had been targeting yesterdays LTRO date as a catalyst. Well, the date was right, but we were handed more than an assist by the real reason - Mr. Ben swapping his Bazooka for his BB gun.
We are definitely in the camp believing that IF QE3 has been disarmed and put back in the armoury (he may suddenly add today "Oh, and I forgot to mention QE3 is a cert"), then it is good news. We know they are willing to use it if necessary so putting it away means they don t think there is need to. More ammo to our long term bullish mood. Not surprisingly the most QE-based trades got shafted. Gold and that uber rates driven pair usd/jpy have been movers, yet equities are not committed and neither are other USD crosses.
But back to that technical and psychological turn. As TMM are well aware, facts often FOLLOW moves rather than lead them, but TMM, being a little more purist, are now, in their desperation scanning the horizon for what could possibly derail or swing what is fundamentally a pretty robust investment background. so what is there...
Oil (or Gasoline) is one for sure. Much has been made of the recent run up in oil prices and the potential knock-on effect upon growth. TMM will take a closer look in the coming days. Europe, as always, offers a good hunting ground for buried woes, though the treasure hunters have been out there ahead of us, leaving most stones turned in their pursuit of the ultimate Eurocalypse. But there are a few scraps left.
Portugal - the price action yesterday afternoon was interesting and, though there was the cacophony of month end in there, the switching intra periphery was notable. BTPS roaring higher and Portugal getting shellacked. Now TMM are of the opinion that in calming markets general correlations drift apart, but THAT sort of detachment didn't look like calm. More like a focused assault. With Greece now on the back burner it does mean that Portugal can be put on full roast. Watching that space.
France - Monsieur Hollande, for those of you who don’t follow continental politics, is a Socialist candidate running in the French presidential election. He also appears to be enjoying a healthy lead, at least for the moment. Hard as it may be to imagine, but Hollande’s also, if anything, more distasteful and disconnected from reality than his esteemed competitor, one Monsieur Sarkozy. And here TMM isn’t referring to Hollande's attacks on the financial industry (with choice soundbites, such as “my greatest adversary is big finance”), but rather his complete and total lack of appreciation of the fact that France, with many other Eurozone sovereigns, is in the middle of a fiscal crisis. Indeed, his suggestions to lower retirement age to 60, re-negotiate the newly minted fiscal compact, remove the advantageous tax treatment of life insurance policies, etc are all likely to make the funding situation for France a lot worse than it already is. Or, rather, “was”, before Baby Eltiaro made everything all OK again. Obviously, one should take everything that Mssr Hollande says during the run-up to the election with a very large pinch of salt. However, if even a fraction of the populist silliness Mssr Hollande is spouting at the moment makes its way into policy, we might find ourselves negotiating a bailout package for France sooner than we think.
We are sure you all have your own favorite flies you are watching in the ointment of recovery and would be happy to hear of them. But for now it looks as though we are fighting a BB Gun inspired attack on thee old favorite QE trades.
...And if all else fails just pray for a weak ISM...