Tuesday, June 12, 2012
Yesterday the markets reminded TMM of the English climate. Eight months of winter followed by 4 months of shit weather became the markets 4 hours of relief followed by 8 hours of shit trading, which has left all around us commenting a conviction of "That is it, the rally has failed so the only path is downwards". So does TMM agree with this? TMM doesn't like agreeing with masses once the mass gets over the Pareto figure of 80%. Applying Pareto further we might suggest that 80% of the bearishness is coming from 20% of the news. Which is fairly easy really when the amount of visible news is probably only 20% of what is really going on. Hence all this micro-analysis of non-statements from Europe.
Yesterday TMM tried to apply a "could" ratio to news headlines and use it as a bearish indicator (counting the ratio of "could", "perhaps" and "maybe" against the "wills", "haves" and "agreeds"). On that basis yesterday must have hit a new nadir of mood as surmises failed to pin down what exactly a promissory 100bln of Spanish bank support actually entails. Indeed TMM agree, it's not clear, it appears ill thought out and it does look like another sticking plaster applied to a flimsy framework. But the Eurocrats do have a habit of creating elastoplast art that is bordering on the structural. But can it be successful? The assumption is no, but we are reminded of that myth-busters episode where they manage to make a fully serviceable floating boat purely out of duct tape.
Perhaps we should not dismiss out of hand the efficacy of this version of European policy. It may just work.
But back to today. We have had little time to get deep but we do smell a bounce after consensus towel chucking yesterday combined with the positional information, the "Price is News" action focusing on Spanish 10 year, the risk of shock of a good headline vs bad and basically our guts. With the long term still a lottery over the Greek elections, TMM are going to play counter sentiment extremism, go short term and pile into some short term risk longs to hopefully supplement some pained portfolios. If there is one thing we have learned, it's that getting the position on before things move is lot more profitable than spending 3 days analysing it, missing it then back fitting facts to explain history to justify why you were right but yet unprofitable. We leave that to the strategists.