Thursday, April 19, 2012

Spanish Kevlar Gloves

First TMM would like to thank the wonderful folks of Cyprus for their hospitality, fantastic go-karting facilities, interesting beverages (we imagine that a few local producers are retiring to Monaco after our custom) and their UK weather, imported especially to make us feel at home. Special Cyprus weather. We will be back - or at least our teenage children probably will be. So now we are back on planet "caffeine free" let's look at what's been going on.

Before our departure to overcast climes last week, we mentioned the 2 wobbles and a hope in the triumvirate of global economics so it's worth seeing how things have changed. The most obvious thing that greets us is that China is no longer on the front page of "Bear Weekly". Now this, of course, suits TMM who have been long of H-Shares for the past 3 weeks and we have no plans to change that position. The US picture, post the NFPs, had appeared to have also stabilised and despite a shake down in AAPL things are noisy but flattish, having said that, the Philly Fed and Housing Data is not helpful.

But China and the US appear to have been shoulder barged out of the way by Spain. Poor Spain, doing an impression of a Wildebeest at a crocodiles' pool party, with even Argentina tearing off a limb whilst it's underwater. That move by Argentina should make for some interesting politics. Perhaps the UK should hire Repsol to explore for reserves off the Falklands. That could even end up with the Royal Navy and the Spanish Armada on the same side.

But back to Spain, or now Europe. because after the sort of OK-ish Spanish auctions we thought there would be two options - Buy some carry and wait for the next event date for there is nothing that kills a bear more than nothing happening OR decide that whatever happens, this is just can kicking and so refer back to the holy bible of Euro2010/11 for guidance "For was it not writ that should the Spanish yields hit 6% we should trash Italian stocks, start rumours of French downgrades and argue that the German population will not support the rescue of Spain"?

TMM do prefer scenario 1. What do Europe sellers expect to happen? To TMM it would appear that the only scenario that supports selling right now is one where Spain crashes, doesn't receive assistance, defaults and the Euro and then Europe break up. Now call us picky but though that indeed is one potential outcome there are a lot of other scenarios and most of them involve some internal resolve, even if it does involve printing your amount of money. Elections may change the leaders of some countries but as the UK Con/Lib coalition is finding out, they are but the tip of the iceberg of the machine that is government. There is enough mass below the waterline that knows where its true interests lie to stymie any threats to them. Yes Minister indeed.

Having piled back into equities last week the current mood should be considered as red flags to us and we really ought to run with the pack, chop the longs, swing short and whip up the doom. Instead though TMM have decided to do the reverse and have broken the glass on the cabinet containing their Kevlar Gloves and bought some Spanish stocks of international appearance ( braced for comments). Hold on tight !!

20 comments:

Hotairmail said...

Good idea.

abee crombie said...

dammit i bought some Spain as well.

perhaps we dont have a climax sell but SPAIN is making the news.. you would think now is the time to cover some shorts (for those ahead of the curve)

still a bit worried but I guess thats the price .. why cant foresight be as easy as hindsight ;0

Leftback said...

When the blokes on the commuter train are talking about selling Spain, it's time to buy.... I was all over that this morning. Details later. Got a train to catch.

Anonymous said...

C says'
As my old friend Pavlov used to say "it worked before so it will work again" .Other than for the times when it doesn't work which is where conditioned behaviour falls apart in terms of enhancing performance.
If I didn't know better I could almost swear some people are looking at bird tracks laid down in 2009 and saying to themselves ..how does it go Mr Pavlov ?

Charles Butler said...

What's lost in the racket is that the ECB is not buying Spanish debt. Previously they were all over it when 10-yr yields crossed 550. More to the point, I'm guessing that the banks have kept most of that Feb 29 LTRO powder dry. But I may be wrong.

Inditex passed SAN in market cap yesterday. Next up - Gap tops Citi.

Welcome back.

Leftback said...

"More to the point, I'm guessing that the banks have kept most of that Feb 29 LTRO powder dry. "

Yes, I think Charles is probably right, and that one day quite soon Mr Shorty is going to wake up in Greenwich to find a bazooka has been inserted into his bottom while he was sleeping. More than a few people between the hedges might be about to find their EWP puts can make them quite uncomfortable.

Leftback said...

Well, sounds like everyone here is having paella valenciana and draining a few glasses of sangria this evening. It is Thirsty Thursday after all. Let's hope we are all in possession of our toes in the morning. Welcome back, TMM.

...and let's add a little music for the occasion, Steve Winwood, from the quite wonderful Arc of a Diver album:

Spanish Dancer

"I can feel the heat, no one has to tell me
It's so good, once it starts I'll never let go
I can feel the beat like a Spanish dancer
Under my feet, making the world go 'round,
I can't come down

You can't hold me when I get to feeling this way
It's all over, I'm inside that music that's playing...

I go out on the street and take my chances
Don't even have to ask, I know the answers"

Dee Dee Humberside said...

Or another dancer from the movie Almost Bullish

Oh how it feels so real
Lying here with no bull near
Only you and you can hear me
When I say softly slowly

Hold me closer tiny punter
Count the divvies coming your way
Lay me down in sheets of linen you had a busy day today

Anonymous said...

c SAYS'
If we're going that road then not to be outdone !

"Uno, dos, one, two, tres, quatro
Matty told Hatty about a thing she saw.
Had two big horns and a wooly jaw.
Wooly bully, wooly bully.
Wooly bully, wooly bully, wooly bully.
Hatty told Matty, "Let's don't take no chance.
Let's not be L-seven, come and learn to dance."
Wooly bully, wooly bully
Wooly bully, wooly bully, wooly bully.
Matty told Hatty, "That's the thing to do.
Get you someone really to pull the wool with you."
Wooly bully, wooly bully.
Wooly bully, wooly bully, wooly bully."

Really do need to know it was done by a chap called "Sam the Sham" I trust the irony is not lost on you.

Dee Dee Humberside said...

And staying with our favourite Watford FC fan

Say, Pauly and Shorty, have you seen them yet
Oh but they're so spaced out, B,B,B,Benny and the Copters
Oh but it's not real, and INFLASHYUN
Oh Benny he's really keen
He's got a pepper beard, and a printing press
You know I read it in a sell-side piece
B,B,B,Benny and the Copters

Andrew said...

I agree with the comment above about everyone talking about shorting Spain. Probably too soon but I have started to nibble in Spain.

BTW: I like the posts

Leftback said...

Sounds like people had a few bevvies last night. Quality. I checked this morning and my Kevlar gloves and socks have not yet been breached. So far, so good.

Now, looking at the French election, one would have to say, Merde! Strong results for the left and right wing crackpot parties and Hollande leading would surely indicate the possibility of another dump in French equities next week?

Les Gants de Kevlar, TMM?

abee crombie said...

we are building up for a move.. spoos, Stoxx etc

Was asking around (US and Canada) and kinda upset that selling spain isnt really all the rage here. Sure the hedgies are on it but what does it say if paulson is on the trade

Earning have been good but w/recent dissapointments in eco land, and if spain really is in crisis, you would think Spoos should be lower.

French elections, QE3 dissapoint all possible next week

Amplitudeinthehouse said...

Bit of a two-way market happening at the moment...you still think even if Spain wasn't in dire straits that we would not have seen this develop..

Still think the YTW longs are in trouble.

ps...Amplitudeinthehouse was last spotted visiting the local RE, word has it , that apparently he can sniff out some cheapness evolving soon, on an island off EWP.

Steve said...

LB don't catch a train wreck.

Agree the banks have kept their LTRO powder dry. Bloomberg has a ticker for overnight bank balances at the ECB, can't recall it now (middle age, teenage kids, etc) but it went up almost the same amount as LTRO operations and has not budged since.

Be careful. 8% of Spanish bank loans are in arrears (as it were) and presumably that's multiples of their capital.

TMM you're right about non-events killing shorts (I have it on the highest authority there) but it's a dangerous world at the moment.

tallyman said...

"EIB inserts drachma clauses in loans to Greek firms "

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_21/04/2012_438736

Polemic said...

thanks Tallyman
.. and use of British law is interesting .. British law and English language to be what ultimately unifies Europe?

Leftback said...

Sunday night in the U.S., and it's LB sitting in here.

It will be interesting to see if the results of the first round of the French elections are already priced into the markets or if punters starts to bid up French CDS for a few weeks on the prospect of a socialist lite Hollande government, perhaps taking the heat off Spain - for a while at least. I am unusually bullish gold for the short term, as the dollar can't get out of its own way and the wealthy French may be ready to join the party and hit the panic button about now.

Steve's scenario on STD and BBVA is clearly modeled after C and BAC, and is well thought out. But we may have entered an entirely new phase in Europe where massive pre-emptive recapitalizations are seen as an essential adjunct to supporting peripheral govies.

It's quite possible that the powers that be in Europe have decided that a series of replays of the US 2008 banking crisis in one country after another is simply not survivable, and it is preferable to engineer TARP like recapitalization outcomes as early as possible in each distressed banking system, and then encourage a gradual deleveraging of banks and households.

If this is indeed the playbook, then buying the panic in each country and then sitting in the resulting portfolio of cherry picked global dividend paying equities or even selected fixed income will be an outstanding way of navigating The New Normal of slow low growth and demographic change in western economies.

Anyone out there who is investing based on 1990s dynamics and traditional credit-driven economic recoveries, well let's just say that we have a whole shopping list of Widowmakers that you might be interested in losing money in....

Alex Rose-Innes said...

Hands on fire

theta said...

Add Chelsea and Bayern Munich to the Spain-bashing gang :)