Looking for the Trigger

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...

Posted by Polemic at 2:56 PM  

19 comments:

Greece: All is well - nothing to see here. "Default insurance on Greek debt won’t be paid out, the International Swaps & Derivatives Association said."

O, yeah, and post factum subordination is wildly bullish.

Secret--Sauce said...
3:23 PM  

"I'm" Sidelined, and licking the lips!

Though this one is not going to easy.

Amplitudeinthehouse said...
3:38 PM  

C says'
I'm not sure we need a trigger. Markets that evolve 'naturally' as opposed to one's that get pumped by a policy change will just undo whatever excess they take on because that's what mean reversion does.
"I'm" also "sidelined,and licking" her "lips" and it's "going to be easy"

Anonymous said...
4:38 PM  

Guys when you look at gasoline, don't overlook nat gas, it has come down hard and is somewhat of an offset. I have not looked at the effects of gasoline on consumer spending per se, but did look at the combination of gasoline and nat gas, here:

http://www.macroandcheese.org/2012/02/complexity-of-energy-prices.html

It's a bit oversimplified but I do think NG should be included in the discussion. My energy bills have definitely come down this year.

On the bull-bear thing I am also looking for a turn so today is not my best day of the year. One of the things I'm watching is that data related to manufacturing has been disappointing over the past month or so, including today's ISM. So far it has been ignored but historically it does correlate well with mkt direction.

Steve said...
5:28 PM  

I always liked the LB capitulation index. j/k fella.

Corey said...
6:53 PM  

...and take a look at brent in EUR...

Steve said...
7:25 PM  

I'm throwing my lot in with "bad news out of China". Housing market has turned and we all know how important psychology is to this market. Once people no longer accept the logic that "housing prices can only go up" they can be very difficult to coax back into the market. Something will come to light here, even if it's just the impact on GDP growth.

http://chovanec.wordpress.com/2012/01/20/further-thoughts-on-real-estates-impact-on-gdp/

WellRed said...
9:42 PM  

Steve, yes you are right and we were talking about that this morning but decided to save all oily things to a later post. Question though, does the price of nat gas have the same psychological effect as car fuel prices? I for one know that I react to very visible car fuel prices ( screamed from every street corner ) while the house heating bills are sort of invisible via direct debits ( tho financially of course are just as real).

Wellred. Anything will do at the moment but i can't see the chinese housing thing causing a mkt turn in the next week or so ..and if it hasn't happened by next tuesday then its off to the races again.

Polemic said...
9:59 PM  

Couldn't agree more the market is due for a breather. But I think the 'mild pullback everyone's waiting on will turn out to be much more.

The lack of volume and trajectory of this rally since Christmas is highly suspect. It seems more akin to the kind of last gasp moves an index makes at the very end of a cyclical bull. Very similar to the last move up in 2007.

Election year or not... I think a recession is coming by late Spring, and that's going to be what finally ends this three year run any day now.

These things always end when you're not expecting it.

chancee said...
10:21 PM  

Actually... everyone, if you're real quiet you can catch a glimpse of how and why the US equity market is able to rise day after day...

It's 7 PM in New York and if you pull up a 15 minute chart of the ES futures, you can see the elusive ES trad-bots at work. Slowly, quietly churning the futures higher, carving out a trend channel to infinity that every trade-bot in the SP 500 will touch base with first thing in the morning and quickly fall in line with. But shhh, don't say anything. 'Cause market is going up because of the 'recovery'.

chancee said...
12:12 AM  

C says'
The thing most botehring me when it comes to looking for any meaningful correction in equity is it appears to me we have already seen an intermediate trend change in the mid February.That is, imo the outlook for 'inflation' in input costs has changed and the moneyflow is bleeding out of treasuries hence the grind up in equities and higher yielding bonds.
For arguments sake were these to becomes as overbought as I believe treasuries have been then there is no reason that I can see why equities will immediately correct in a way which is actually going to offer a deep discount buy.
The difficulty is after such an extended move money is reluctant to add other than on dips,but without dips it becomes a chasing market. Were 10 yr treasuries to revert to 2.75 or above levels which was their pre collapse point what might that imply for the level of high yield equity as the spreads normalise?

Anonymous said...
9:42 AM  

US regular gasoline at the pump is $3.72 /gal up $0.34 from year ago. This is definitely starting to have a psychological impact on consumers and an immediate tax on wallets as opposed to natgas which has much more lag.

Anonymous said...
11:54 AM  

Bong smoker says...

I'm not entirely sure about this Nat Gas thing. Dunno how things work in the States, on my side of the pond heating is paid via a monthly deduction (always the same amount) and a one-off payment at year end (technically early next year) to make up for the difference between theory and practice. So you don't feel an impact immediately but only with a loooooooooooog lag...

Thus I would underweight the potential effect of low Nat Gas prices (except for those who are invested in the latest widow maker).

Anonymous said...
12:42 PM  

The flip side to that notion may well be:

Initial Jobs starts to level off again and form some sort of range inbetween 330-380.

NFP stuck inbetween 0-150,000


Equities have chased thee above in conjunction with pre-QE3-LTRO.

The Weeklies have the same Yennish feel about them when around the jobs numbers...O'shit..if wasn't for a certain weekly-job system when in Yennish mode, I'd still have my head in the old faithful football program and been transferred to the Costa Rican football bookies.

The research throws up that usually EPS Qtr\Qtr is front-run bye around a couple Qtrs..so is this happening as we speak?

The PIIS spreads have tighten which has been conducive to. risk-on..LTRO.

Question

Do I bet on P\E expansion

Do I bet China QE

Do I bet the Europeans go against the unwritten word and gamble that cheap money outside their jurisdiction( I have no proof)

I don't think the markets operate in any linear fashion, but these variables have a heavy weighting in my calculation at the moment.

I don't this year is the one that I'll be looking back on and saying to myself that I missed the boat on any macro directional bet...I'll stick to swinging the wide edges....to I don't.

Amplitudeinthehouse said...
12:42 PM  

Polemic, totally agree, paying at the pump is bigger than paying the utilities. In fact, Con Ed debits my account and most of the time I don't even think about it.

Steve said...
1:57 PM  

Speaking of China, I follow AUDCAD as a proxy for all things Asia and that chart is starting to get interesting. It has been impressivvely strong but is showing signs of wobble.

Steve said...
1:59 PM  

TMMs observation that negative posts get more comments still seems valid

abee crombie said...
5:46 PM  

Here's some bad numbers, TMM. Strewth, mate!

Aus Services Weak in Feb

That might hit our favorite risk proxy (AUDJPY)?

Leftback said...
4:04 AM  

Did I win, did I win?

WellRed said...
2:19 PM  

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