Wasp in a Bottle.

Wednesday, May 23, 2012

  Yesterday TMM were trying to write a post and just gave up after rewriting a couple of paragraphs a few times as each sentence suddenly seemed to deserve a whole post. But reducing down the boiling mass of poorly linked thoughts we ended up centring around the idea that until we get the Greek elections out of the way the European function could suddenly move from the melt mode to sideways trading as the "sell" part of May turns to "go away". The bounce yesterday seemed to support that but the new levels of  panic earlier today challenged it, but by no means negated it. Equity markets have rapidly given up yesterday's gains but haven't broken new lows, periphery European bonds are steady and  it really seems to be the mainly the FX market that is shouting and screaming. No change there then.

 With that in mind we are going to stick to our "not really going anywhere for the next 2 weeks" view, so despite spikes of buzzy noise we expect the wasp to be trapped in the bottle. This led us to think that perhaps we should be using this morning's spikes in short term vol to sell it. This train of thought led on- Sell 2 week vol but perhaps buy 1 month for after the election event? For direction as well and in what? Is this for a stand alone trade or a hedge ? Looking at the Greek hedge (garden centre jokes aside) we feel the ultimate explosion in Euro would surely have to be in Eur/chf where, unless the SNB want to become the vomitorium of Europe, they would have to let the floor go at least temporarily. So we either get fancy and sell 2 week eur/chf puts and buy 1 month or we just don't bother and sell eur/chf cash. We then we got distracted and didn't do anything.

Without any new news, the debate is becoming religious over Europe and we do consciously try to avoid religious issues. This is also why we won't be talking anymore about Facebook. Elsewhere it does look as though we are coming to the end of the current supply cycle and the BRICS are losing their mortar as Brazil goes nuts, Russia's without love, speculators bone China and India curries no buyers. None of which is good for the commodity story but we will be posting on all of that tomorrow.

Finally TMM are suggesting that any thoughts of a "Grexit" should be accompanied by those of a "Gerxit". How about the rest of Europe default on everything they owe Germany, kick them out of the Euro and then print like crazy. That's what you do when you cant work out which of two scrapping schoolboys started it - send them BOTH out of the room.

Stop press- A friend of TMM has just sent in this. We are unsure as to whether it is his own work or an original from the estate of the, very sadly, recently passed away Mr Robin Gibb. Either way, we are very proud to present Robin Van Bee Gee doing the EU-

Well you can tell
By the way I use my fork
It's EU dinner time
No time to talk
Disputes loud , a massive storm
Problems kicked around
Since the Euro was born

They'll say it's all right, it's ok
We'll have more dinner in late May
Bury our heads in the sand
And all come up with diferent plans

Whether you're a Frenchman
Or whether you're a German
The Euro's barely alive, barely alive
Feel the city breakin
And everybody shakin'
The Euro's barely alive, barely alive
Ba, ba, ba, ba, barely alive, barely alive
Ba, ba, ba, ba, barely alive

Bunds don't go low, they just go high
And if they don't do either, I start to cry
Long wings of dollars, in the blues
Buying Facebook Puts, I just can't lose

They'll say it's all right, it's ok
We'll have more dinner in late May
Bury our heads in the sand
And all come up with diferent plans

Whether you're a Frenchman
Or whether you're a German
The Euro's barely alive, barely alive
Feel the city breakin
And everybody shakin'
The Euro's barely alive, barely alive
Ba, ba, ba, ba, barely alive, barely alive
Ba, ba, ba, ba, barely alive

Posted by Polemic at 1:32 PM  


Goody!..some original brain teasing tomorrow.It's looking as though Copper ain't waiting around for any election result.

See guys..this is what happens when Darth Weber is out of town..you can't even pay for a tape bomb these days!

Amplitudeinthehouse said...
3:01 PM  

I wonder if the focus on Europe is masking problems elsewhere?

Japan is almost certainly decelerating after the recovery spending, while the the Euro problems are pushing up the yen and hitting exports. And they may have the mother-of-all debt problems.

Also, China is clearly decelerating and officialdom there has been curiously passive.

And China decelerating spells trouble for Oz, Russia, Brazil, Indonesia, etc.

Meanwhile, India is having currency and debt problems.

If job growth stalls in the U.S., with household deleveraging having brought debt levels only back to those of 2004, it's hard to see the rosy outcome.

Bob_in_MA said...
3:27 PM  

The answer is another 2008 commodity/energy toilet dive in a way which maes it clear to the managed funds and their numty clientel that this stuff really is NOT a diversification play and a must have portfolio allocation of weight. When we get that OUT of the way the real economic world can start fixing itself because today all we have had for 3 years is ..QE pavlovian buy the tangible stuff response mechanism which has almost completely offset the majority of any gains that might have fed through to an over indebted consumer base. Moreover, until this particular is peeled and diced there is a hard limit on how much help the global economy can get from the Brics and China which are truly the only places that can supply markets that are potentially good for growth.
For me that is the true story of the last years and as an aside is Europe who needs the above and a good deal besides just to stay above the waterline.

Anonymous said...
3:35 PM  

I like the odds on TEF and EDP...but it doesn't mean they can't get even cheaper later.

I always been a lousy market timer, either too late or too early , but I am pretty happy to try catch this falling knife as there is enough blood on the street and revulsion on anything to do with EUR.

btw, I love the EURCHF trade...

Tradebot said...
3:59 PM  

To say TEF looks cheap day after day after day is starting to get a bit absurd, no? Of course it will bounce back, but so what? Blind squirrels and the like, innit?

Anonymous said...
4:03 PM  

C says'
Far as TEF goes at the bottom of the 2003 market prior therefore to the expansion created by credit thereafter buyers thought somewhere around 7 to be worthy of a punt.As for Spanish banks the problem I would have thought is they are virtually inquantifiable without knowing the format for recapitalising them and it seems clear the market appears intent on pricing them for a recap event of magnitude.Or more likely they're not interested because of too many unknown unknowns !! been dying to get that one in somewhere. Indeed the latter is the song of Europe right now don't you think? I'm not convinced we're going to be sideways.Appears to me this is one of those times when the market that likes to shortsell has got itself a free shot courtesy of the Eurocrats.Don't think they will pass that up.

Anonymous said...
4:26 PM  

nice rhymes with the EM Polemic. Their currencies are indeed getting blown out. Brazil CB came in today. I am looking at 2.2 to step in. Still a very decent carry as long as the world doesnt end.

0 in schatz soon and 2% 30 year germans. Lets see how crazy they can go. That will be the short but timing is not there yet!

abee crombie said...
5:09 PM  

Free prize from TMM! Find the grocer's apostrofe and win a thwack of Bankia shares

Charles Butler said...
5:15 PM  

Ha. That little ditty has all the hallmarks of a certain gentleman now based in the US, our beloved MM himself?

Bleedin' Ada, talk about capitulation selling in Europe. This is beginning to remind LB of days spent poking through the rubble after the US crash, as the market sold off day after day in February 2009. We remember buying Ford for a dollar and change one day, and a uranium miner for 23 cents.

Flash PMIs ahead for China and Europe. I wonder what apocalyptic numbers are already being priced in?

LB is starting to feel BOLIVIAN here. This surely qualifies as a Blood In The Streets kind of day?

Leftback said...
5:36 PM  

The noise in the market is deafening, the good and bad are lumped together, punditocracy has turned up the volume to "11" (tm Spinal Tap) and RETAIL is throwing in the towel and institutions are parked at 0% Schatz.

It is fair to say some "bad news are priced in".

Of course structural changes are WAY too damn hard to implement in Eurozone so the end solution is always to let ECB rip and print gazillions. Greece in or out of Euro, the end destination is same.

Timing wise , bit of limbo here : too early to buy full BOLIVIAN but too late to short the living daylights out of this market.

Tradebot said...
5:45 PM  

I guess before going BOLIVIAN, one needs to wait out and see how the 2+ year dandruff patterns showing up all over the major indices are working out.

UKX 5000 for instance ... look out below.

Anonymous said...
7:25 PM  


PA Hedgie said...
8:26 PM  

This is a VERY Macro Driven Market. Which is to say, FX-driven trades clearly move the markets more than anything else, witness today's dump when EURUSD crossed below 1,2626. Most equity trading of late seems to be a derivative of leveraged (or more recently, deleveraging) carry trades.

A stronger than expected China PMI number might be expected to begin to draw investors out of JPY and USD and into AUD, BRL and ZAR, for example.

A stronger than expected Eurozone number might also be expected to draw investors out of JPY and USD and into EUR.

Both events would be very positive for emerging market FX, EM and Euro periphery bonds and European equities, I submit. The week's US data might be less critical here.

It's very bearish out there in the media and the blogosphere. What if they gave an apocalypse and nobody came?

Leftback said...
8:42 PM  

Charles I think I can see it .. But are you sure it's valid as it isn't a plural with an ' added? Its an abbreviated "is". But being rubbish at English I hand over judging of the TMM grocer ' competition to you!

LB .. nope it wasn't actually the original him ..

PA hedgie - you are hired

Right, since I have returned from fighting lawn mowers and failing, everything has bounced. RAAAAANNNGE !! Best i find out why !

Polemic said...
9:01 PM  

I keep hearing "message in a bottle" when I read the title of this post.

My two cents: higher into Friday.

Steve said...
2:34 AM  

C says'
US holiday weekend will hold markets and Mr Whippy should be happy.

Anonymous said...
6:46 AM  

Found it Charles.. humbled!

Polemic said...
12:38 PM  

Post a Comment