Monday, April 23, 2012

Is THIS your wave?

Mood is not good in Camp TMM this morning and it does feel like a camp. Encircled by whatever the politically correct way of referring to Red Indians is these days. For here we sit with a pile of Spanish stocks, our background long equities in general and our view that the world is not about to end and whooping and hollering all around us. There is hardly any point in us going over old points on Europe as Europe (come to that, most views at the moment) has effectively become religious in point of view. We remember all the past cults of markets and it would appear that the last 5 years have programmed a new generation of market participants that the cult of Roubini brings you fame, fortune and credibility. True, TMM themselves could have been classed as the biggest contrarians in 1998 - 2000 mocking the likes of Abby Cohen, and also suffering near depression on the run up to 2008 shouting "can't you see it?" but to TMM this current Cult of the Black Swan is creating a new Mordor where everything is BLACK!



But this disasternista thing is tiring. And we are tired. Roller coasters are fun and the thrill of the big fall is exhilarating to the point of wanting to have another go straight away. But after an hour or so it's uncomfortable and, more boringly, predictable. But with a roller-coaster you do at least get the guaranteed big fall every ride. However perhaps this is more like surfing, with the doomsayers out on their surfboards hanging out at the back waiting to catch the big one. Waiting as the sets roll in, watching the eager young pups jump on rides that just fizzle. If THIS isn't the wave, then just wait .. the big one will be coming along soon.

Is this the big one? It certainly feels like plenty of folks have decided to catch it, as Holland and Hollande (don't they make guns?) on top of a set of weakening PMIs result in what feels like an old fashioned YOURS. One of those YOURS that revolves around speed and momentum (the steepness of the wave) rather than new thought or process. But to TMM this isn't the big one and we will sit it out as we ponder -

1) If this really is the "End of Europe" play, why the heck is eur/usd effectively flat
2) The corporate splurge. Looks like the flood gates are opening on those piles of cash with today's offering being Nestlé's purchase of Pfizer's baby food - for cash.
3) There is virtually no difference between the fiscal policies of Sarkozy and Hollande in terms of budgetary consolidation.
4) Isolation of the German view in Europe is, we would argue, a positive given that the market has been calling bluff on the "Austerity Only" policy prescription that has largely failed in the periphery so far. You can add to this Holland's move to reject Buba orthodoxy and Merkel's likely election loss to the SPD next year.

The compression and isolation of Germany is of course the end-game, when it comes. However it would appear that for them to acknowledge that they need to share the burden, they first need to acknowledge that they are also as guilty as the Greeks. Culturally that is not there. Which reminds us of an incident we experienced when skiing in Italy this year. The Italian waiter gave our order to the guy behind in the queue by mistake. The guy knew it was in error and yet he said nothing. When we told him he was jumping the queue he told us that it was not his fault - the Italian waiter was stupid. We asked if he was German and he replied asking why would that be relevant - in a VERY German accent.

This move does feel forced and it isn't for us, except in commodities and commodities-driven EM. TMM has a sneaky suspicion that those catching this wave are a little too clever for their own good and may be using one of these.

26 comments:

Anonymous said...

C says'
Expected a weak opening to the weak ,because just as you say there is nothing like a void in data to kill the bears,well it also can apply to bulls sometimes.
If you're really wanting to get long you can afford to let the shorts make stuff cheaper for you when their is an hiatus in front before BB opens his mouth again and I would guess that's even safer when more recent comments have been not to expect anything more at this time. I think it's a free shot for shorts ,and the scheduling of data and news supports them temporarily.

Should we even talk about seasonality?

Anonymous said...

weak weak ...Freud would have enjoyed that one!

Nic said...

I am not on the ride yet ...

abee crombie said...

I agree that the move does feel a bit forced but I am getting a bit worried (which I guess we need if we want a really decent wash out) about peripheral yields. Starting to enter danger zone.

Your trolls and ogres hiding under bridges waiting for stops may soon find some if spoo's start thumping through 1350 which is kinda close.

I'm holding the line for now, but will be cowardly protecting my capital thereafter

Anonymous said...

1) The fact that EurUsd is flat is not a "risk on" signal in my view right now (maybe due to French banks EUR rapatriation as they scramble to put up cash). Think 10Y OAT-Bund spread is a much better signal. The EurUSd should eventually follow through lower (how the hell can it not weaken if they want to have any chance at any growth and containing situation).

Amplitudeinthehouse said...

Knock it off!!,Polemic, we asserted at the beginning of the year that if we go into get shorty mode to leave to relative currency out...

to wit:

http://i797.photobucket.com/
albums/yy258/FX-/eurotmm.jpg

Markets nowadays naturally have a sense of being forced when turning down( in the beginning) welcome to QE, also known around the traps through the ticker YTW.

However, I'll gladly hit the bid right along side ya..but not now buddy!!


ps...Amplitudeinthehouse was last seen leaving the One Dollar shop carrying a feather duster, in the hope that soon he'll once and for all dust off those cob webs!!

Steve said...

It'll take you where the action is.

Put me in the "real deal" camp. Germany +11% with Spain -20% YTD? I don't think so.

charles said...

1) It may be repatriation, but also an acknowledgment by the markets that Ben is capable of anything to tank the dollar. With all these literature saying that in a deflation, the Central Bank must be credibly crazy enough, Ben may have succeeded in doing so, and the american polity may have succeeded in convincing that they won't stop him.
2) Buying another company is not an investment, it is just a transfer of cash from Nestle to Pfizer. Real investment is factories, marketing campaign, etc...
3) Yes, their economic program is just as reckless and unsustainable
4) This one is the biggie, as you recognized. But I think it is more a question of how the internal fight is going to pan out in Germany rather than a homogenous Germany vs the rest of Europe issue. When directors of the Buba get sued (with maybe some personal liability involved) by a significant federation of industries which form the bedrock of Germany's success ( and whom representatives may be roaming the ski sloes in Italy), it shows that the internal fight is starting.

CV said...

Well, I think this is all very predictable really, US macroeconomic surprises rolling over (it works until it doesn't, ok!), stock to bonds very stretched on a 3m and 6m basis etc, etc ...

Is this the big one though, nope ... but Abee is right. Once we sail through 1350 the momentum traders and algos will kick and give us a nice little show all the way down to, uhmm, 1250? It wouldn't a be an earth shattering correcting given the run-up would it?

Claus

Leftback said...

Price is News. This is especially true in the case of EURUSD, which we all "feel" should go to 1,20 or even parity, yet stubbornly refuses to melt. Do you want to know why, macro pals and fellow punters?

Show me the DXY approaching 80 and I'll show you a change in the language of the FOMC statement. This is where we are my friends, Central Bank arb.

Bernake realizes this is akin to the Cold War. There is no point in the US or anyone else having the "winning" currency if the rest of the world is laid waste. Mutually Assured Destruction.

So despite the discomfort of today's knife catching, this isn't a bad time to fill yer boots with a few selected European equities. The US 10y is telling you a number of things today, one of which is that US growth is being overestimated at present, and that value is therefore to be found elsewhere.

Charles Butler said...

Among the Einsteinian gems encountered recently in the noise-o-sphere:

Tier 1 capital is paid up equity at current market price;

The purchase of govvies depletes bank capital;

ES banks are booking MTM losses on their winter bond purchases.

----

The secondary market for Spanish debt is just a sideshow for the irrelevant. Volumes, especially 3 years and out, have been somewhere between anaemic and auto-immune for months.

Equities today on the other hand:

BBVA/SAN -2.5%
French banks -3.75%
German -5%
Italian -4.4%

Italy exposure. And with Monti continuously trying to deflect attention westward...

Anonymous said...

Searched for "disasternista" (to find the "formal" definition, and only came up with links back to this page (seven of the top ten search results).

At least you are getting indexed quickly.

abee crombie said...

1) what happens if Aapl misses? do all the hedgies get out and take the market down with it? Are expectations finally too high. Just a thought

2) Agree that Bund is the risk indicator, along with SX7E (stoxx bank index). Give me some divergence there and I'll become more bullish

Dutch circus aint helping either..

Tradebot said...

I am a buyer of cheap long term tail risk: Long dated AAPL puts. Short EURCHF via 1-touch options.

My gut says there are few more 2-3% down days before the market zooms up. Lot of momentum players have been looking for the retracement after huge Q1 rally and here it is.

Charles Butler said...

Correct that!

BBVA/SAN -1.75%
French banks -4.15%
German -5%
Italian -6.3%

Leftback said...

I don't like the US much at the moment. Not until all those hot money escalator stocks bleed down some more. A lot of non-existent job growth is still priced in. The values are elsewhere. Not just Spain, but all across Europe, dividend yield is on sale.

The mainstream financial news John-Johns in the US are all still talking about Spain, which they have just noticed is down a tad, and France (which is apparently having an election). Cor, guv'nor, wot wizard reporting !!! By the time these dickwads notice a wave of selling, we think it is definitely time to buy.

Meanwhile what Mr Market is actually telling us (see Charles above) is apparently more closely related to Italy, which is the weakest market today, and German banks. If Spain is the problem du jour, why is SAN down less than 1% and DB off almost 4%? We think sellers are beginning to move on.

Leftback said...

This is fascinating. Everyone agrees that the dollar will get stronger, whether their head is in a bull or a bear costume. But if it's so obvious, why hasn't it happened?

Strong Dollar Consensus

What if their head is actually in a donkey costume? Maybe the US economy IS NOT in a powerful jobs-driven recovery, and maybe Europe and China are actually more healthy than the latest headlines might suggest?

Anonymous said...

If there are truly are currency wars ongoing then what is GBP doing by not playing? Is sterling a short up here?

http://www.bondvigilantes.com/2012/04/23/sterlings-strength-is-hard-to-explain-but-it-poses-big-risks-for-the-uk-economy-in-2012-equivalent-to-a-1-8-rate-hike/

abee crombie said...

dickwads... wow its been a while since I heard that one!

perhaps the retail/homebuilder stocks need to take a breather if jobs # disappoint again (but I've been saying that for a while)

Agreed S.Europe is the place to buy on the cheap but just not sure S&P will hold the line. Silly stuff tends to happen when it breaks

Leftback said...

"If there are truly are currency wars ongoing then what is GBP doing by not playing? Is sterling a short up here?"

Does the UK look like a vigorous growing economy to you? Nah, thought not.

"perhaps the retail/homebuilder stocks need to take a breather if jobs # disappoint again"

Ya think? I thought the "bottom was in" for US housing? OK, maybe not.... :-)

"Agreed S.Europe is the place to buy on the cheap but just not sure S&P will hold the line. Silly stuff tends to happen when it breaks"

Yeah, long some SPY here, but not really with a lot of conviction. Like your SPX 1350 level as the trapdoor. Below that, the 200DMA beckons, down at 1295ish. But well before we get there, we have a Wizard Day.

Steve said...

I'm starting to toe into a eur short. Obvious reasons are today's PMI and int rt diff but also LTRO looks like a QE paper tiger, cash still at ECB => sterilized. Also think that since EC uberheads are dug into unity that will weaken the whole basket. Now add Spain to the pile and man with Italy conf down 9 pts on the month, not sure I see too many more legs to kick out from the stool. Stool, as in...

Anonymous said...

Compare to other oil majors, isn't TOT:NYSE a good buy? Or am I missing something?

Anonymous said...

C says'
Custer relieved by smoke signal from Sitting Bulls wife to hubby,get HOME now,or the dogs get your dinner.
The question is,how long does it take for Sitting Bull to eat his dinner and get back on the job ?

Anonymous said...

c SAYS'
AAPL to Sitting Bull ...message read "Hunt Bears today"

Anonymous said...

C says'
Uk banks start reporting Thurs with Barc and the ret follow early May.Barc should start the ball rolling with good results as the past qtr should have favoured them with mix in play. Custer buys amd waves his horn inviting bears to take a seat on it.

Redrut said...

Well regarding Hollande and Sarkozy, there may not be significant deviations in their spending when you read the Manifesto....

...the difference will become apparent once one of them gets elected and has to outline how he intends to finance it project.

It is pretty clear that the Hollande govt is going to require more money to fulfill it's promises and therein lies the problem.

It is not necessarily the end of the world trade but you can be confident in the knowledge that if Hollande gets in, ratings agencies will cut down france and those short OTE's are going to have one hell of a party.

http://1percentblog.com/french-voting-the-rich/