Monday, April 23, 2012
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.