Tuesday, May 29, 2012


TMM have been suffering deja vu. Groundhog year perhaps.

The check list -

European spreads - check
Bank bailouts needed - check
Equity markets on the slide - check
Complete and utter silence from the very people that should be seen to be taking control of the situation - CHECK CHECK CHECK!!!!

The Eurostriches are back. We have just revisited our first post on the Eurostrich back in summer 2010 to remind ourselves of their morphology and were struck by the familiarity of conditions to the point of depression. Unfortunately the one noticeable difference was the amounts mentioned that would shock the market. Today we need to have at least one more zero added. E30 billion? Pah ! That's nothing!

Back in 2010 the market was looking East for the ultimate bailout, but today Voldermort and his Death-eaters appear to be too distracted patting out the flames on the hems of their own robes to worry about taking over the world. But TMM are worried that China is starting to suffer from the same disease as Europe. That of the Eurostrich.

The last policy response we saw from the bridge of the Chinese ship was to ram the engines into reverse to counter a boiling property market. Now whilst TMM have no love of Chinese property developers, cement magnates or officials who use informal financial channels in Macau to take cash offshore, there is a difference between a smack around the chops, solving the root of the problem (political accountability, abominable oversight of SOEs and a need for "real deal" control style privatization) and putting the whole economy into cardiac arrest with a credit/fiscal baseball bat to the head.

But since this last response, the infighting between the Captain and his officers on the bridge of the Chinese economy appears to have left no one in charge of the controls. Only the PBOC appears to be tinkering around the edges and TMM think they should stop behaving like a former pimply 15 year old turned 30 year old overpaid banker/fundmanager, jumping up and down on the couch at Spark in Beijing celebrating its newfound cultural relevance and realize that it is doing as much to bully the economy now as the property developer bovver boys do when doing "land consolidation".

This morning there was rumoured hope of a new stimulation package but this was swiftly countered by *CHINA HAS NO INTENTION TO INTRO LARGE SCALE STIMULUS: XINHUA. TMM would like to believe that this is a comment on the lines of the Bernanke Put, to be taken as meaning that they have no intentions as there is no need, rather than there would be no intentions even if there is a need. Or rather, that the easing this time around is unlikely to be the "just throw a couple of trillion of loans at it", and more about targetted easing, particularly on the fiscal side.

Yet TMM do have a terrible fear that the diseases of political paralysis that have been seen in the US during its debt ceiling debates and in Europe with the lack of strong hand response, is now breaking out in China. If TMM don't see any signs of faster implementation of Chinese infrastructure projects then we are going to be dreaming up a new ostrich term for the Sinocrats.

Sinostriches perhaps.


Anonymous said...

Austriche : Having handed the non mining sectors heads to them on a plate with sphincter puckering interest expense and a nose bleed currency..... all to facilitate his "structural adjustment"... now that the Chinese are cooling off, Glen Stevens is starting to look like a right **** innhe ?

abee crombie said...

Shanghai property index is looking very strong

The situation in Europe I think is draining all US PM's energy and most are content to remove it from their sphere of influence, though it always has the chance to cause a major 'Lehman' moment

another weak NFP and I would assume Bernanke introduces another twist. Perhaps he is already targeting the buxel (german 30 year) at sub 2%

Anonymous said...

C says'
I suspect,just a wild guess', that the use of the expression "Infrastructure project" is going to be the most used and abused terminology for 2012 H2.

You see "Infrastructure project" is what Rover wants when he can't get what he really needs. That is ,a piss up against a wall, instead of a truly juicy bone called serviceable debt level underwritten by investment justified on a ROE that crystallises hopefully before Jesus comes again.

"Infrastructure project" coming to a cinema near you entitled The Road to Puzo Negro!!

Anonymous said...

Given Bob and Bing can no long star please vote for your current leading men.

Anonymous said...

The Ibex fell below the Dax today. Who would have imagined that six months ago?

Leftback said...

"The situation in Europe I think is draining all US PM's energy"

Actually, I think it is stretching their limited intellectual capacity (already at a low seasonal ebb as lightly attired totty begins to flood the streets of Manhattan) and challenging their highly nuanced geopolitical knowledge base (all French are socialists, all Greeks are tax-evading kebab store owners, all Italians are commies, all Germans are jackbooted authoritarians, Brussels is the place where the sprouts are from, the Euro is crumbling etc..).

As a result, US PMs are still running up prices on all things American (especially fixed income and tech companies they don't understand) while missing out on one of the best fire sales we have seen in equities since March 2009.

Leftback said...

A good summary of extreme sentiment indicators etc.

Panic Like It's March 2009

Meanwhile, a plethora of one-sided "riskless" trades proliferate (Long CHF/EUR), and a variety of safe haven assets are bid to prices that will soon be seen to be most unattractive (Bunds, US 10y, Gilts).

Anonymous said...

Re Chris Puplava and US markets: the article nailed the 18-May bottom, since when we've seen a decent abc correction higher. Looks like today's US data may have capped that correction, so least resistance now downward again. However, cracking value developing in Europe. Be very interesting to see how extreme pessimism can become, and the levels of equity anathema reached, when this secular bear eventually lurches off to its cave...

Anonymous said...

C says'
"Cracking value",thanks for that one.
You see this does not feel like March 2009 to me at all.It feels like 2008 when the credit markets were freezing up causing economic mayhem to activity and proved t be the kiss of death to may companies vunerable to cashflow freeze ups.
Back then I was getting calls nearly every ther day "see the yield on this ,got to have some",cracking value no doubt.
Then the call would come again a week or so later "it can't go down any more can it ",seeking reassurance.
I pullout ot a 5 year loom and I still see plenty of volume on the cracking value that tells me we still have plenty of heroes to go around. Call me when the volumes dried up.

I think it helps to stand back and try to forget the markets your living and look at it as it really is which is millions and millions of individuals making their daily decisions to buy ,or sell or hide their notes under the bed.The corporate equivalent of course being to stash them uselessly in a German Bund ,or indeed to put them anywhere ,but where they should go to establish normal trade functions.I suspect that again people will underestimate the degree of disruption that is being caused to business conditions when markets go into this kind of stress related freeze up.

The problem is I atually don't see am end in sight. Even if Greece votes to stay in does ayone seriously believe that that on it's own is going to reverse the decisions that have been made recently which has seen moneyflow head for the hills?. We need a lot more than this,but as it stands the policy ship apperas rudderless.

Ironically I recall at the start of April 2009 saying "I like this market" and all I got was "yours" because the "cracking value" guys were covered in plasters smarting from multiple attempts to catch some kind of value bottom.

Also worth noting of course that the higher risk bond markets had already recovered by then denotng that the 'crisis' for equity really was over. How are our bonds doing at the moment? level of issuance,inflows/outflows,spreads.

abee crombie said...

interesting thoughts LB and C. Infrastructure for sure! Americans do have a very narrow view of EU but the tech chasing crowd aint doing so well (nor the more conservative IBM, MSFT iNTC chasing crowd either)and I think that could be a harbinger of bad things to come.

Impossible to know if its april 2009 or 2008. the rational thing to do in a panic is to panic. but if we dont get a panic to sell, then another grind up will at some point ensue.

Leftback said...


I don't like the US market at all here, except for a short-term trade, and a punt on a few "weaker dollar/QE" dependent sectors. The economy is really much weaker than people think. Avoid everything in the US until better prices come along?


Honestly I have thought this idea over and I don't agree. I really think it's more sensible to say that Europe 2011 was the US 2008 analog (the first real deer in the headlights, OMG we are all insolvent, AIG has tanked the world economy moments of the post-Lehman credit crunch) and that summer 2012 is indeed the early-2009 analog, post-TARP (LTRO) with forced liquidation, panic and general cluelessness clearly still in command over valuation, yet the deepest nadir of the recession probably behind us in Greece, Spain, Portugal - and another awesome tide of QE liquidity ahead of us.

Because if it isn't ahead of us, in the form of ECB rate cuts or QE, Germany is going to go in the tank along with everyone else..... and that isn't going to get Mangler re-elected.

This analysis does depend on the Europeans having learned from the Lehman event.... so we must assume that the failure of a Really Really Big One, like Santander, Soc Gen, DB, etc... is unthinkable and will be prevented by printing. Bad Banks like Anglo Irish, Dexia and Bankia will continue to be assembled as containers of toxic waste, as the others are recapitalized by any and all means.

Anonymous said...

C says'
I hear what you are saying,but first and foremost this not just about banks is it? If anything I would call this a country run rather than a just bank run. Money being swept out of countires altogether rather than just avoiding certain banks. My problem with this is as a businessman I don't see how normal trade can function under these conditions.
Just two examples fromtoday and I tihnk yesterday. First, pharms calling time on Greek hospital supplies, ping cashflow. Second very substantial drop in Spanish retail sales,ping cashflow.

Sorry mate,I'd give my left bollock to sing an optimistic tune here, but everything I think I know about running a business tells me this is setting up for a stinker of H2 2012.
Re your ECB theorising well in truth I'm astounded that in fact they have let the situation escalate to this level and I find it a concern that they appear to wish to abdicate responsibility onto the specific countries as their recent statements have indicated because those countries appear virtually powerless to act individually.

I'm not seeing a quick fix here.More to the point I'm not seeing price action to support a long buy setup.To me it smacks of suck(in) ,spit(out) and grind down.If this goes on long enough we should see the volume dry up as the message get's home and then things do get interesting.Wish I wre seeing it now,but Im not.

Anonymous said...

"Europe’s debtor states must pledge their gold reserves and national treasure as collateral under a €2.3 trillion stabilisation plan gaining momentum in Germany."

Now this ,or anything like this that can get a unity of purpose back on the table could tempt me.At the end of the day most of what is going on imo is down to a lack of confidence and credibility in respect of European political will. If they can restore that we have something that can stop the hemoraghing.

Anonymous said...

Still in the worst one-half of one percent of times to be in the equity market.

Europe featured prominently this week. I don't believe for a minute that "the deepest nadir of the recession probably behind us in Greece, Spain, Portugal" - money supply figures clearly indicate otherwise.


Leftback said...

C said "If anything I would call this a country run rather than a just bank run. Money being swept out of countires altogether rather than just avoiding certain banks. My problem with this is as a businessman I don't see how normal trade can function under these conditions."

EXACTLY, amigo, EXACTLY, indeed we are getting very close to the point where the machine seizes up. This is why the ECB and other central bankers are going to bloody well have to go in the back and come out with a massive fire hose full of liquidity and piss it into the markets like a racehorse before the races at Cheltenham. Otherwise it is all going to close down in Southern Europe, people will take to the streets and then it's going to be a very long hot summer of Molotov cocktails. Prepare for an outburst of synchronized printing the likes of which we may not see again for quite a while......

Leftback said...

......and by the way, a special word for people with approximately one synapse in the media who seem to think that QE is being done "for the economy". It is not. QE does very little for the economy directly, other than to avert panic in capital markets. The main purpose of QE is quite OBVIOUSLY to curtail and attenuate disorderly currency fluctuations and to palliate the effects of the latter.

By the way, geniuses, the Fed will not make a loss, they will either hold to maturity or they can begin to sell some of the Operation Twist long bonds here, book a monster profit and then reinvest in dodgy stuff, in so doing forcing money out of Treasuries (and hence the overvalued dollar) and into other assets, like, um, European debt or anything else you fancy a punt on.

It's a lot easier to understand this stuff if you let yourself think, "What would Bernanke do if he was in fact not a tool but a clever bloke acting like the world's biggest hedge fund?" instead of just thinking what the media is telling you to think...

Anonymous said...

Yes, it all looks like sh1t and, as everyone knows, is surely set to get worse because those in control have proven themselves to be less than knee high to halfwits...

...yet, what's that I see in the Shanghai Composite? Signs of life, if not signs of a reversal these 2 days past? About to poke back through that 200MA?

Hmmm, smells like Hammer Time.

Anonymous said...

LB, Bernanke is a without question running the world's largest hedge fund with its own printing press.
He is certainly well positioned so far in this game, but as you point out it's Europe's move.

Anonymous said...

The Bernank 'running the world's largest hedge fund' is the wrong idea. Any savvy trader or hedge fund could never operate with that kind of leverage, so it's a false comparison.

However, running the biggest carry trade in history is wholly accurate me thinks

Anonymous said...

Anon 12:18 Any (other) savvy trader or hedge fund" cannot print money.

Anonymous said...

C says'
Well here we have it,why there is a market at all. I understand the view expressed and I hold a different view as it stands.

Current context to me depicts a picture where we are virtually into an exclusion zone for investment moneyflow.European sovereign outside of bunds declared no go area.Banks by association same.Last time we saw this many of these banks became penny stocks and rights issues then became common as muck.

Against this we know,and here I agree with LB,intervention will have to happen because a continuing situation like this is not permissable. Politically careers would be destroyed by non action. The difficulty is when,how long does it take,will it be sufficient ,or will they need repeated bites at a cherry to halt the process.Meanwhile a couple of % a day grind down whilst we await intervention will destroy you unless you are taking fleabites at what you want.

Personally I know what I am looking for ,but I have not yet seen it.When it is there it will show I have once again given heroes the best price to get ahead of me which is not an issue because from my point of view as i am simply allowing them the opportunity to do some heavy lifting for me for which they should be rewarded for because I won't be having any sleepless nights.
Each to theirown as they say.

Tradebot said...

Heh heh, on that bombshell of consensus breaking out : things are going to get worse before they get whole lot worse!

Trading wise, 'tis is no time to establish new positions but ride the bets placed earlier in the year (short EUR, long bonds)... there will be more blood on the street so one has ample time to choose your own poison when it comes to adding some long risk into the book.