If a Bear Falls in the Forest....

Friday, September 07, 2012


.. Does it make a noise? 

With mood having been so grim for outlooks on Europe, US (PMIs)  and of course China (hence iron and Aud falls) it has been no surprise to hear the call to sell risk persist. One only has to look at populist blog comments to see how that mood remains in retail with all rallies being called as a new gift of a sell. But apart from iron ore and aud recently, bears have been fighting a fearsome enemy - Price. 

SPX new 4 yr highs. 
IBEX up 33% in the last 6 weeks
Spain 10yr down to 5.80% from 7.5% 
Eur/crosses generally up a lot over the last 2 months.

With Jackson Hole, the ECB first event risk behind us and a clue to NFPs being OK from the ADPs, there appears to have been a global bear capitulation on many fronts with even iron ore moving higher. The air has been thick with towels as even new bear fashions are squeezing up.

 Iron rebar +5% today 
Aud up 38.2% (magic fib) of its recent falls
All things China are rallying hard

Most strikingly someone has switched off eur/chf's 1.2010 electromagnet and it is motoring higher. Which some see as noise but we see as more of a sea change in expectations  of the binary euro blow-up function, if not the underlying economics of Europe.

But whilst TMM are very happy to see a rebalancing and indeed their portfolios are glowing green and blue rather than red, there are some concerns that the race higher may not continue in Euro-land for much longer. The proliferation of bullish eur/usd calls hitting our inboxes this morning is one indicator that market bias is flipping to at least neutral and the recent data we see is indicating a market short of usds. Whilst we believe that some entrenched core bearish positions remain untouched we may not be far from the top in five-minute macro position adjustment.  In periphery debt, specifically Spain, we have seen yields melt. The 10yr traded at 5.65% but Team Macro Man, though relatively bullish on Europe vs consensus feel that this capitulation is not the end of the road for grief on Spain. We will be writing more about that on Monday as we haven't time now, but suffice it to say that the bears may yet get a soft landing.



 Or at least the bulls get better levels to buy on. 

Posted by Polemic at 1:02 PM  

15 comments:

seems to me these past two years sentiment has been the main driver of markets. I think we are near a cusp of optimism, especially for the US , spoo's bulls.

Either EM catches up (along with Europe) or this is near a top

EURUSD is just nutty, 1.35 here we come

Might now be the time to sell the schatz? Finally positive rates and ECB bazooka finally in place

abee crombie said...
1:49 PM  

You must see the new consumer theory from Alex Gheg. This will give you a much better understanding of the economy. Quantity, quality, variety and convenience in one equation. This gives us a true scale for progress. http://www.youtube.com/watch?v=u6tFLGpcOpE

MrIlir said...
11:51 PM  

That Bear isn't dead, just tranquilized.....

Leftback said...
4:14 PM  

You know we Bears have a huge arse so there is no doubt it will be a soft landing.

Ursa Major said...
6:06 PM  

No idea about the action in Spoos, but we may be getting close to a short term top in some of the shiny stuff. These kind of articles always seem to appear at moments of rampant bullishness among the "PM enthusiasts":

Peak Gold Sentiment Indicator?

See what I did there? I said "PM enthusiast" instead of that other thing....

Leftback said...
7:21 PM  

Nice post. Thats help full.

http://www.personalloanscarloans.com.au/

Car Loans said...
8:02 AM  

BRBY holders getting Edward the Seconded.
Ominous sign for the sector as TMM aptly pointed out a couple of weeks back?

Dee Dee Humberside said...
9:43 AM  

Yes.. can t say we aren't smiling ....in a non-ostentatious way..

Polemic said...
10:18 AM  

It does make a lot of sense, but alas, timing momo reversals has never been my forte, so happy to let bigger boys than me cash in on that one

Dee Dee Humberside said...
10:26 AM  

on the burberry, looks to me in general the market is setting up for some sector rotation, assuming we dont collapse, looks like money is being pulled out of defense and into offense. still early, but materials sector, a la China, maybe put in a bottom, and all the lux, nestles, diageo's, dollar tree's of the world are finally looking a bit weak.

Lets see. But good observation TMM.. is DVY next?

abee crombie said...
1:21 PM  

abee, long fxi the laggard and some cheap spi Dec puts just in case the shit hits the fan?

Dee Dee Humberside said...
1:59 PM  

dee dee, the options aint bad, but the basis between the 2 has been huge this year...

I am thinking of buying some China/materials, small and then adding, if correct, in about a month. If not just get out if new lows are made...pretty clear levels. like you said picking the turn is pretty tough to do.

abee crombie said...
2:31 PM  

LB agrees, but disagrees with the idea of getting long China, and by extension, miners and shippers.

Yes, it's been battered senseless and left bleeding in the gutter, which is always where we like to find our investments (when they are not falling at terminal velocity). However, to really drive China and EMs in general we would have to be clearly in a place where both USD and JPY can sell off, and LB doesn't think that's the case just here, unless you are absolutely convinced that a massive QE is coming that hasn't already been priced in, or that European GDP is going to jump to +5%. We are not in that camp.

One more China-specific reason to wait for the trade is that Wen Jiabao intends to hand over power in the great communist/fascist behemoth that is today's PRC in 3-4 months. China watchers will know that Beijing will want to give the new man a strong hand, and so we think stimulus measures and monetary easing may be more clearly evident around that time.

Sentiment on China is weak but not extreme, and dividend yields are hardly compelling in general. Our experience is that markets like this can and do get cheaper. We would like to see complete and total China revulsion (along the lines of the summer's Europhobia) before getting involved. These markets have rewarded those who wait for the trade to come to them rather than chasing.

Leftback said...
2:43 PM  

i hear ya LB, those trades are better when they come to you..

I still think schatz is the real trade here though

abee crombie said...
5:12 PM  

Schatz may bleed slowly but LB thinks that there are other instruments (including the yield-less instrument that can not be named) in the smaller and sometimes alarmingly illiquid markets that are likely to get kneecapped first.

Leftback said...
5:21 PM  

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