Monday, October 08, 2012

Asian Exports Turning?

Well TMM had a weekend that that belied the rather pleasant weekend weather in the South East of England. If bad things come in threes then we are in credit for a while. Nothing serious such as health issues but every job embarked on turned into a cascade of disaster. TMM call it the photocopier syndrome when just sending out a copy of a document turns into a nightmare involving phone calls to photocopier help desks, keys to stationary cupboards being locked in drawers of secretaries who are out to lunch and finally ends 6 hours later being covered head to foot in photocopier toner (probably with your trousers missing too). Which is just like our frustrations in today's markets - only it feels that if we are not careful the colour of that toner ink will be red.

Our micturating into the gale force blast of AUD bearishness has left us just above our stop loss positions and seeing how AUDJPY and everything JPY crossed has taken a battering this morning we are sanguine about the outcome . Brace yourself boys this might hurt. Equities are however holding better.

Today is back to "Price is News" and it does feel as though the market is scrabbling around for fresh bad news to pin on the lower numbers. To TMMs amazement and to some extent interest as surely this must be the real lesson, Jack Welch has become the mascot of every conspiracy theorist out there. If Jack Welch says its conspiracy then it must be conspiracy. All TMM can do is remind folks that there was once a time when Tom Cruise and David Icke appeared normal.

Moving on...

TMM have been watching with some interest the Asian export data that seems to have been largely ignored by a market that believes that the China slowdown and that of the region more broadly, is the only game in town. Fair enough. The trouble with this view, however much policymakers (and Jim O'Neill) carp on about economic rebalancing within the region (or the much vaunted capital outflows from China) is that the evidence is not particularly convincing. At best, the externally led slowdown (driven by Europe and the US to a degree), has optically meant that consumption and investment have ticked up a bit (mainly as a result of exports to Europe kind of, well, collapsing), but also in halting one of the primary themes of the past decade - that of Asian FX reserve accumulation as the US and Europe have imported less. It is easy to see how the story of capital outflows and the end of the Asian currency appreciation story could be spun, particularly given the outflows seen from China earlier this year.

But it's all kind of stopped now, with Asian central banks once again being forced to intervene to weaken their currencies, USDCNY spot trading at the bottom of the band (as suddenly onshore banks have found themselves long of Dollars) and there are signs of an export-led recovery in the region - once again the function of ISM and its Orders/Inventories components bouncing dramatically over the past couple of months. Indeed, putting this together with the stabilisation in the European PMIs, TMM's model of Real Chinese Export Growth is signalling a reasonable bounce:

So far, so just a model... But last week's Korean Export figures showed a robust bounce, particularly in electronics. And Taiwan's export numbers this morning similarly showed a dramatic improvement, beating expectations for just a 1% YoY increase, to +10.4% YoY. And it does not appear to be the result of any particular distortion, showing broad-based strength across the board, in terms of sectors. When looking at the regional breakdown, however, it becomes a lot more interesting: while exports to Europe remain weak, falling 10.5% YoY (though up from -17.4%), exports to China jumped 6% (vs. -5.7% last month) and to the US by 2.7% (vs. -8.4%). And this, in a month that traditionally see exports fall, seasonally. This is a big turnaround from the weakness we have seen over the past few months and suggests that activity has begun to rebound.

One of TMM's pet hates is the seeming inability of commentators to look at Real Export Growth rather than the Nominal numbers, especially when these statistical agencies so generously provide us with Export Price data... Nevermind... Anyway, the below chart of Real Export Growth in the region also suggests a rebound, while Singapore lags somewhat, and is one of the main reasons TMM have liked shorting SGD vs. the basket as something of a hedge for their long risk views. Though, going into the MAS meeting this week, the risk reward is probably not enough to be adding to that position right here, especially given the impression that we are not alone in this trade.

So, adding it all up, TMM reckon with China back this week, the potential is there for the market to reassess the Asia slowdown trades, because it looks to us as though these are - particularly in China and Australia - past their sell-by date.


Leftback said...

Yes, absolutely, the "China growth slowing, their economy frozen to absolute zero" trade is more than overdone.

Odd day over here. The US equity market is Home Alone as its parent, the bond mkt, is on holiday. Then there is the recent phenomenon of Counter Trend Monday, which has been in place for a while.

UK readers should be aware that Over Here, there is a bunch of chart watchers who believe that AAPL 650 is Critical, and that AAPL is now The Market. They also think Earnings will be Dreadful. LB isn't on board with any of these statements but it is prevalent Out There. We still think that Liquidity Trumps All and that Mr Shorty is going to be violated repeatedly before this rally is over. So Just Buy The..... you know the rest.

Polemic said...

Hmm no one liking to jump in and agree with the above apart from good old LB? Yet no dash to decry either.. hmmmm....time to invoke the no-commentometer to indicate a world short of asia and aus but not as comfy as they would like to be?

Anonymous said...

Looks like the world is bored and / or short and this is not a good combination, most of the time ends with a decent risk moves

Anonymous said...

I do cuncur with the above. The media pundits are right for a change calling this 'the most hated rally.' I also agree the world is too short.

Part of this is because the rally this year has not been because the fundamentals have improved, but because tail risk has been removed. Market participants who do not accept this premise are right to be short, because if you only look at fundamentals you should short risk.

Leftback said...

Alcoa earnings predictably horrible. Yawn. The obvious question now is, does it matter? Will the horribleness of Alcoa and its lack of relevance to the market now lead us to think about the next thing, like say, US banks probably made money again? LB is also guessing that GOOG and AAPL earnings didn't suck.

Most US earnings seasons lead to sideways drift and FX/macro driven trade is usually suspended. This one may be similar, although things are a bit Europe this week. One of our favorite Knobs of the Week is on about Spain going Peseta again, and he usually turns out to be a contrary indicator.

Matthew Lynn's Latest Spanish Tripe

abee crombie said...

Thanks for the post and info. Its always good to get some facts interspersed with opinions, and not just opinions

However I am not so sure everyone is in 'the China is in the toilet trade'. Look at Thailand, Philippines Malaysia stock markets and bonds. Though they are minnows.

Also the RNB/USD spot the one to watch or the 3month NDF premium..I never know with that currency

Anonymous said...

C says'
I'm off to the opticians today to get some new specs as I obviously need them having failed to see in those charts what you appear to see.
Look,I get it when sectors ,or geograpical markets rotate ,some leading and some lagging then switching when extremes are reached.All of this is a necessary part of any twosided market. I just don't see anything in the pictures that shouts get your wallet out.

The big questions still remains the same. Is global monetary policy loose enough to create enough growth to counterbalance the nonsense in Europe and will Obama screw Romney and avoid the US doing a "European austerity" kick ?

SP has been sideways for weeks with a base at 1440ish.Longer it stays there further it will travel eventually ,but we don't know which way. Against that I still have this gut thing that says' how far down can a market go if Banks are slowly ,but surely improving their lot and I think they are.
It's not hard to see the difficulty in establishing direction at the moment as we have some obvious counterbalancing issues being dealt with.

For me the gamechanger is not Europe ,but the US and what happens in the election.
I see a Romney win kicking the equity market down and the dollar up with all the consequences thereof.

Leftback said...

C, I think that's very clever and really a good call on the impact of a Romney/Ryan win. That would be interpreted as a positive for the dollar, for Treasuries and not for equities, apart from a small short-term knee-jerk rally which should be sold. An Obama win might be good for stocks, but will surely be perceived as negative for the dollar and Treasuries.

Another way to look at this US election is between the Printers (Obama, Bernanke, Krugman and the Keynesian economist faction) and the Austerilizers (Romney, Ryan, Taylor and other monetarist economists).

I'm not interested in the political aspects of this at all, but I am concerned about my positioning vis a vis the dollar and the long bond, and right now I would rather be short.

Younger Americans will rally around Big Bird and the Cookie Monster. This election is the beginning of a decade or more of generational warfare in the US between retiring Boomers (hands off my pension/dollar and medical bennies) and the beleagured Millennials (we need jobs/inflation to pay off our enormous loans).

Anonymous said...

Remember just because Romney/Ryan campaign on an austerity platform doesn't mean they won't dance at the ball just like everyone else.

Anonymous said...

True, at least until the music stops...

Anonymous said...

Doesnt mean the market wont freak out and take a dump either.

Politicians have a way with things. Love to create crisis to make it seem like they are doing their job.

abee crombie said...

while everyone is watching the debates and US elections, I still think EU matter, especially when PIN. $Euro sitting at 200day and Stoxx at a swing low. A big move lower, PIN and I think we could have a nice 2.5-5% down move

Tom should tell us

Leftback said...

There is a lot of fear out there, especially in credit, as exemplified by the demand for US 10s at today's auction. Some of that demand is no doubt fueled by more concerns about Spain, Greece, and skepticism about ESM etc... but the money is there to be used, and shorties may find it is used to keep nudging Spanish 10s below 6% every time fear rises.

Very little complacency out there today, DX still can't surmount 80 in a convincing way, nobody likes China, nobody even likes AAPL, and Michael ("RORO") Gayed has changed his mind three times this week already -and to us this suggests that sooner or later the rally resumes and climbs the Wall of Worry. Meanwhile we're also adding to our Treasury short position, hoping of course that we don't become victims of Ye Newe Wyddowmakker.

Anonymous said...

At some point the "Wall of Worry" becomes a myth and you lose 50% or more of your wealth when the market takes it away.

The bull pundits were also speaking of the "Wall of Worry" in 2001 and 2007. How did that turn out?

Anonymous said...

C says'
Anon 3.40 please do not take this the wrong way,but you appear to be a layman. I say that because your comment so clearly misunderstands the essence of everything that goes on here. In the most bullish comment posted here this year I doubt if there has been a poster from TMM,LB etc etc who was advocating getting so long that they could at any point lose "50%" of anything.
Personally even when on the side of the bulls it has been a case of simply leaning more weight to the longside and less to cash ,or a different form of hedge.By my reckoning we are at least a couple of years past the point at which we had a market that leant it self to being outright long on risk.No, this has been about bullish in the sense of pick your shots and then sell the homer. If I have misunderstood that position then I stand ready to be corrected.

Oh,and that's one "layman" to another. I lay claim to no particular expertise.

Anonymous said...

C Says'
Didn't realise the GMen were talking in Tokyo today at the best of the US.Rather timely given the context.Expect Europe might be getting the "G-up" thrown their way. Difficult to see though whatelse they could have to offer at this point.

amplitudeinthehouse said...

Going back to the topic of NFP QE weekly system ( lets be real it's no system just JBTFD) my limited experience with this method is pointing to a 2012 top may be in place...there you go :)....Spain is the only query if screaming uncle and force a bailout...other then that as anon stated in a previous post, why TF did we come to the market when there is no crisis and thereby just ride the qe race around the bends and up the straight and out of sight...uncle

Anonymous said...

C says'
Amp,perhaps I misunderstood earlier posts,but I had thought the main thrust of being long risk was to go where the lagging effect was still offering the most scope for a rally.That is,predominantly Asia/emmerging where monetary policy was becoming increasingly offerred. I actually don't recall posts suggesting that post current QE should be used for a further US ,or even European rally.
Again,maybe I got that wrong,but that's my personal take on it and indeed reflects in part my current stance.

amplitudeinthehouse said...

I didn't misunderstand you, but turning to your analysis of the asia\emerging monetary easing being increasingly offered, well I'm happy to be still here to tell you that they may be following the lead of others with a verbal shadow put in the market place...but who knows until it's tested, and with that we'll know if front-running the asian monetary policy is as rewardable relative to the fed if the current global slowdown lingers for much longer. With that said, I think it's time to head back to the tai chi occult until the next sizeable move comes to light within the macro synapes.

ps...bowl of rice a day, just fine thanks.....

Leftback said...

Fellow punters, LB & Co. has very little idea in general about what equity markets or stocks will do in isolation. We aren't good at all at what you would call "micro" bottoms-up analysis, and we are novice chart readers (we do recognize patterns like double bottoms and LOLHOR*). Left to ourselves, looking at charts of SPX in the dark, we would be completely clueless.

However, (and this is why we frequent this blog rather than the ones where people yell at each other about chart formations) given some enlightenment in terms of the macro context (FX, bond markets, QE and other central banker cunning stunts), we are sometimes able to make intelligent guesses about fund flows. Right now, with liquidity spigots set to "OPEN", US rates extremely low, and Bernanke apparently eager to debase Uncle Buck until eternity, the macro context suggests that upside surprises in emerging market FX and equities, Europe and even US equities are by no means out of the question.

*LOLHOR - low on left, high on right, aka the Gartman principle.

Leftback said...

Initial Claims only 339k here, in the Land of Opportoonitee, but ideologically twisted traders apparently dismissed it, and Jack Welch tweeted "339k? Impossible, it's more Porkies".

Still, it just could be a sign that the US job market is a bit less dire, which is plausible, b/c, get this: US COMPANIES AND LOCAL GOVT OFTEN HIRE PEOPLE IN SEPTEMBER AND OCTOBER.

Maybe lows are in for yields after yesterday's 10y bacchanal. Another possible sign of a steepener ahead, Gary Shilling on Bloomberg today, usually coincides with short term tops in bond prices.

Another indicator, a clever chappy came on saying, 'ere look at the charts, China has turned, and all the Bloomberg totty looked at him as though he was a recent arrival from a leper colony.

LB thinks there is an enormous phallusy in the following argument (2012 = 2007, buy Treasuries), see if you can spot it:

McCullough buying USD and TLT

2007 was the beginning of the credit crunch, liquidity was scarce, and rates were much higher. LB finds this an odd viewpoint, especially from someone who was a foaming at the mouth Treasury hater at a 4% 10y in 2010 (and was wrong, by the way).

Leftback said...

Lukewarm long bond auction. If you want to see a bearish chart, pull up the 3 month chart of TLT.

I'll get my coat.

Anonymous said...

C says'
Welcome to Whippyville.

Anonymous said...

Wall of worry? Where is the *Wall of Worry* with VIX sitting at multi-year lows?

Leftback said...

Here's your Wall of Worry, mate....

Loads and loads of really clever people still sitting it out, fretting about Yoorp, China hard landing, Grexit, Spanic, fiscal cliff, dodgy earnings, Obamacare, Gas prices, Iran and so on.

Treasuries going bid, despite yields of 0.67% on the 5y and 1.68% on the 10y (cf. 1.20% on the QQQ and 2.17% on SPY).

Not that many bulls:

Bullish Sentiment Drops to 30.6%

Remember VIX doesn't measure worry. A low VIX just means this: not much in the way of short term volatility is anticipated. In either direction. Flat markets, not untypical during earnings season, eh?Medium term options activity might be more revealing than the VIX itself.

The sentiment and relative yield situation here simply isn't the stuff of Market Tops. If too many people get short here, there will be a squeeze. Likewise, if global data surprise to the upside and rates rise a bit, at some point there will be a stampede out of bonds that will make Pamplona look like walking the dog.

Btw, they have a TV thing over here called Bloomberg Rewind where they have people on to say clever stuff about markets after the close. Some blokes have been coming on all year and going "oo-er, we don't fancy it here b/c of Europe, China, Bernanke, Obama and my dog just peed on the carpet". Meanwhile we have been absolutely filling our boots since Draghi's bazooka was first mooted. Once that lot finally turn bullish (SPX 1500? 1550?) then I will be completely petrified.

Dee Dee Humberside said...

Vol is low but that's not the entire story as commitments are nowhere near toppish levels. Bulls are only reluctantly so, as per C's layman post above.

I am not mad positive, especially in equities (except for a few cheeky china punts already discussed here), but there is a good argument to be made that resolution is going to be to the upside after a breather.

Interestingly, I am far from a political expert but there is growing noise that the GOP is coming to its senses regarding taxes. So the dreaded fiscal cliff may go the way of 'Iran war / Spanish default / Godot / Liverpool win count / insert your favourite long dated bet here' faster than some people would have you believe.

Anonymous said...

C says
I'm already on record as wanting to get longer risk,but at these levels i have a tactical problem.Certainly US and almost UK equity risk means buyng a new high rather than buying a real dip. Now it's been many a long and painful year before buying new highs put anything in my bank account.Ergo I'll pass on these ,or get the dip and squeeze opportunity mentioned by LB.

Leftback said...

Bloomberg Rewind on again tonight. LB had a few swifties and settled in for the show. Another brilliant show, mostly the same script as usual, here's a sample of an imaginary show, with imaginary guests of course.....

Host: "So, f**k Europe, what about Spooz? Don't d*ck around with the folks at home. Is it going to go up or down?"
Finance Bloke: "Well, we are on the moving average so it could go up, but by the same token, I don't fancy it b/c of this QE business"
Host: "So it's going up?"
Finance Bloke: "Guys think it could go up, unless we break lower, in which case guys think we are in a whole new trading range".
Finance Bird: (smiles indulgently at this gem)
Host: "Finance Bird, what are you buying?"
Finance Bird: "Nothing, we are already longer than a massively endowed, um, well longer than a very very long thing. We bought Greek debt at yields of 3000% in the Spring and sold RIMM short so we have made 269% this year already"
Host: "269%? Impressive."
Finance Bird: "200%. The 69 was poetic license"
Host: "So, what do we have to look forward to tomorrow?"
Finance Bloke: "Guys don't like this rally. Smart guys are sitting on the sidelines waiting for a decent sized correction to get in. Guys are protecting capital."
Finance Bird: (smiles indulgently) "Since January?"
Host (changing the topic): Got a recipe for us?
Finance Bird: (smirking) Humble Pie? Donut?
Host: How about a song?
Finance Bird: (smirking) "It's The End of the World As We Know It".

Anonymous said...

C Says'
Lest we forget because our brains are eing drowned out by the thundering of "dogs" in "Pamplona" all of that I mean all of current rates exists in the US because the Bernanke Fed wishes it to be so because he sees overwhelming need that it be so.
Now I am pretty sure he has a picture of the yield curve he wants to see there and it's steep where it needs to be steep. BUT, short that ,no thank you very very much indeed. Lest we forget the moment such a short creates a position that threatens what he wants to achieve he will stamp it out of existence. Of that I really have little doubt and if you should think he cannot do that then consider how much of that debt % he is hoovering up.
Funny on risk on don't fight the Fed has been the undoubted warcry and yet would you really think to fight the Fed on where it wants to see debt yiels,hardly consistent reasoning.

There is certainly one outstanding fund manager of the 9's out there running an Absolute Fund who has maintained for the last couple of years a similar view and position on Japanese debt perhaps we should ask him how has that effected your portfolio performance.

I don't have to be a lover ,or B&H addict to govt debt to believe that being the shortside of some of that debt is no place for me to be.Lest we forget why it is where it is in the first place!!
Gross v Bernanke ,,,splatttt, and it will be gross to see the residue from such a contest.

amplitudeinthehouse said...

That's why hang around here,C....traders here are like mercenaries , when the facts change there willing to change...if anyone had been reading the charts and analysis that I receive bundled in a subscription service weekly over the past months they'd be having a severe case of apoplexy...instead we sit here pondering the trades that could have ruin us and the future trades that are still available and in hindsight ( that's a beautiful thing) should've taken. I'm the first to admit, that 2012 will be remembered as the year I was taken in by the media pundits...showing a lack of risk-management when trading with other peoples money is unacceptable. The only saving grace is the account has been saved and my analysis is pointing to better times ahead.

ps...boy, am I taking that to races...

Anonymous said...

C says'
Wrapping for the weekend.
It's been a pretty good year for me so far and by that I define good to be that I have been able to achieve what are probably fairly modest targets for an annual return as behoves my conservative nature and advancing years. What more can one ask?

Lest my earlier post paint me bear I'll add this.There is something significant occurring here in the markets over the last couple of years ,or so i think. With hindsight somehwere down the line I think the world will wake up and realise while most of it was hiding that long term real wealth was busy buying up the worthwile productive assets available. I really think that is what is happening quite insiduously ,many of todays assets won't be coming back for sale at significantly lower prices for the forseeable future. They're now being held by people who don't need ,or want to sell simply because there is an ever diminishing pile of worthwile productive assets left to chase with whatever money they liquidate.
I do speak from persoanl experience.No I'm not groosly wealthy simply very comfortable and i can and will tell you I am personally still holding yield producing assets from late 2008 and you could not prise them from my grip at this time at a price that you would probably find acceptable.I suspect that there are a lot more people just like me out,individuals and wealth funds .

Worth thinking about if you really are a bear ,waht are you going to feed on if I simply won't sell what you would ultimately like to buy?
Hope that clarifies a few things.

Charles Butler said...

Would we be too bold if we suggested that TMM elevate C's last comment to the status of 'post'?

amplitudeinthehouse said...


Hitting modest targets this year being a conservative trader or not is no slouching effort in my view. Having only being trading the markets for a couple years, modest targets or not, any amplitude risk in my portfolio needs to be assessed, that being said, I know myself enough to know that different categories of amplitude risk can arise , and which ones will push my trading emotions to the edge ..this category being more fundamentally orientated...everyone has a weakness in their game. Once I straighten that out the charts just talk to's what I think those airy fairy people call environmental issues..

No doubt, that those that stuck solid through 2008 volatility have now even more reason to ride it through to the end of the decade in my opinion..lest no forget the master shitsandwich eater chart tipping a yennish put fatigue top at the end of's all playing out...he knows :)

Polemic said...

Which one of C's? The one referring to wealth quietly buying up worthwhile assets?

Charles Butler said...


Dee Dee Humberside said...

Isnt this incidentally one of the drivers of the sellside revenue death spiral? At least on the FI side.

I see this a lot in credit, where supply of "the good stuff" (ie, underpriced because illiquid and/or complex, but robust credit) is terribly low. Assets moved a couple of times in 2008-10, from the very levered who couldn't afford to own them anymore, to the unlevered who are now going to sit on them until the end of times.

Meanwhile, salesman in the middle is increasingly rendered useless, as the first party in that trade has gone bust, and the second party has filled its boots already and can't be bothered any more.

Polemic said...

Totally agree.. am trying to write something encompassing volume reductions. transparent markets. Regulators. Whether equity listings are worth the bother. Old fashioned merchant banking. And basically taking everything out of sight. Leaving the obvious markets to the muppets.. (i only refer to the film itself you understand)

Leftback said...


A thoughtful post, but save space for a response. To clarify, LB has not lost his marbles, is not spouting hyper-inflationary nonsense, not postulating rates going to the moon, rampant Bond Vigilantes rampaging down the streets of Chicago etc.. but we do think you could see +50 bps or more tacked on to the 10y very quickly, if and when we see improved data or political clarity out of Europe, China and the US. Add in the fiscal cliff likely to be fudged, increasing the US debt:GDP ratio and we think the risks to US fixed income are simply much larger than are widely appreciated.

Remember, C, the details of Bernanke's objective in this QE3 era are slightly different from QE2: keep mortgage spreads tight by buying MBS in size, and try to maintain credit flow and stable asset prices by pushing investors out into riskier assets. There is nothing in there about pinning 10 year rates below the rate of inflation. Bond bulls are very very complacent here, and there are few remaining investors out there to get long. Bond bulls are suffering from a severe case of what Ritholtz likes to call Recency Bias. Bond market reversals can get messy, even modest moves of 50-75 bps.

Anonymous said...

The same trend is visible in real assets: very difficult to find anything reasonably priced even if currently the object is loss making. As an example one could look at EM agriculture: over the past 15 years a lot of people saved / accumulated just enough cash to be able to waste harvests now. Value destruction on one hand squeeze of the middle on the other hand, direct benefit to big holdings above everything else.

Dee Dee Humberside said...

It would also be interesting to see how that observation fits in with the rush towards non-productive real assets.

Maybe it is that this particular punter's observations points are not representative of the broader sample, but there are quite a few people at work talking way too loud about how much money they made (unrealized, obviously) on their classic car, luxury watches and other "they don't make more of the stuff you know" items.

And of course, there is always the shiny metal.

Anonymous said...

Well, there are assets and there are toys. Interesting thing is that toys got so overinflated now that it is hard to see much of the upside (Notting Hill house 900k => 35e6 in 15 years => ? in another 15 years) never mind how much of money is going to be printed. While non productive real assets that are loss making at present do present tangible interest to wealth that can integrate them and improve the margin. The problem is that it is simply impossible to get your hands on that kind of property if you are an outside punter.

Anonymous said...

May be one more point to consider for your next post TMM: degradation of frontman leadership standards, fits into the picture. Lagarde does not have a clue about economics, probably is not even properly briefed on key IMF publications. But in a world of underground wealth currents that is precisely what is desirable. Sharon Bowles to replace King. Would not even know what hit you.

Dee Dee Humberside said...

Anon 3.32, *that observation* was referring more to C's post above, about LT wealth accumulating productive assets. This is true to some extent, and as I was saying, any FI observer can witness how this has affected prices and volumes over the past three years, but at the same time, there has been quite a large amount of flows into what you call toys (btw, surely, for 900k, you meant Notting Hill garage) and "safe havens". I do cringe a little whenever I hear the "they don't print Jaegers you know".

All this to say that I reckon there are still significant pockets of wealth trapped in zero yield (whether it's UST, gold or "toys") and any reversal there is likely to be quite unpleasant for those involved.

Anonymous said...

Sorry, i might not have been clear on my point: I am just confirming C's observation which in my opinion also applies to real assets: farms, mines, plants, etc. There is real differentiation inside 1% (hate this term, just can't think of anything better right now). Bottom of it is ready to suffer and carry at the loss to squeeze out the middle, while it all plays nicely for the select few. Re toys: 900K 15 years ago is 35 million now (, safe heaven yes, but yo don't want to be trapped servicing this. MY casual observation that the price is there in a large part due to some over leveraged developers

Leftback said...

There is going to be a frost tonight in the US Northeast, and LB thinks you'll probably get more warmth by burning heating oil than if you use T-bills. Pretty soon those zero yield asset classes are all going to have to be re-evaluated.

Looking back, we didn't play this week's trading very intelligently. It was always going to be a distorted week in Treasuries, with 10y and 30y auctions and two OMOs (Tuesday and today) as FRBNY continues to wrap up its Operation Twist program.

Still, that large customer is not going to be active in that sector of the market in perpetuity, and the market will begin to register that before OT ends. There will still be some front-running ahead of OMOs, but that's not the same as real demand.

Polemic said...

Wish i had more than my phone to type on at the mom as this is turning into a very good discussion.. anon.3.40.. this is turning into more than a posts worth .. more like a book.. lots of interlinking themes like a ball of tangled wool.. but if we can pull it together into a grand unification theory of all current issues we may just win the nobel peace prize.. well if the EU can win it then can t be hard can it?

Anonymous said...

Polemic, good idea with the book... I guess we are all at the stage of data gathering right now. And yes, latest Nobel is the other side of the same coin. To be great first of all you have to say that you a great, a lot of people would listen and not ask any questions. This Nick

Dee Dee Humberside said...

Anon 3.58 gotcha now

About the servicing bits, toys got bid up also because of their remarkable CGT optimisation properties. So servicing/neg carry simply is just some form of tax planning fee in a sense. Agreed though that when/if the music stops, not everyone will have the ability or willingness to continue carrying those puppies

On this point, you have to think that it's not only Nick Clegg and/or the crazy frogs who are going to at some point realise it makes sense to tax activity/production a little bit less, and assets a little bit more. Skew incentives to get the engine started, you know.

Anonymous said...

Dee Dee, agree with you completely. Politicians just don't have any balls right now. But that is what has to be done, something along the lines of a one-off tax on all the assets, solves fiscal problems in a non inflationary kind of way and is not likely to drive away rich migrants. Nick

Leftback said...

We are clearly entering an era when conspicuous luxury consumption and toy collection will be taxed hard to support more productive endeavours. This is clearly a good thing but it will be a tougher sell in the US than in Europe, due to US brainwashing about the ultra-rich being "job creators". Does the record show Romney to be a job creator? Hmm...

More pontificating on bonds and rates here, sorry to perseverate on this. The interesting comment in this article is the one about the appearance of non-traditional customers in the Treasury market. This is the kind of thing that gets one's attention:

Tsys Gain as Fed Keeps Buying

abee crombie said...

RE: smart money buying up real assets. Everything looks like a good investment when rates are low. When rates rise, really rise, all assets will sell off, private, public, house and watches. Maybe the yellow stuff will hold but I cant see a great ending in that scenario.

And while wage output and labour conditions are slack in DM, ask a headhunter to find a good accountant, Java Developer or Doctor. Skilled professionals dont have so much slack. Even more so in EM.

Leftback said...

What if they gave a recession and nobody came? The ECRI weekly leading index is, um, showing, mild expansion;

ECRI WLI Turning Up

Detailed commentary here:

Time to Recant the Recession Call?

Leftback said...

A broad collection of US data points from a variety of sources, collated here at Bloomberg, together with a nice poke in the eye with a sharp stick for Jack Welch:

Other Things Jack Missed

The thing is, sure, most of these things are highly seasonal, nobody ever does a thing in August in the US and activity picks up in September, but just b/c it is seasonal doesn't make it any less real.

A recession now seems somewhat unlikely, a deep recession out of the question, and now some measure of economic recovery might have to be priced in by US Bondstriches? Nah, impossible....

Leftback said...

A few other people have noticed China breaking out:

Shanghai Breaks Out

Loads of macro data out of China this week, starting on Saturday and culminating in a massive data dump on Thursday. We've noticed that the market turn sometimes leads the fundamentals.....

Anonymous said...

C Says'
Busy I see.

Your specifics both clarify and expose the holes in my general statement about US yields.Moves of the magnitude suggested by you appear quite plausible.So once against our exchange was more about communication,interpretation and subsequently clarification than it was about disagreement on the issue under discussion.
You're linguistically interesting mate,but I'll leave it at that !

Earlier this year was my 10th year at this activity albeit I could claim at least another 20 years perhaps over 30 before those,but though very relevant imo they would be a great deal narrower in terms of financial focus than the management activity etc that we discuss here.After all that experience I'd be a bit disppointed if I couldn't perform to my fairly humble remit.

You do of course make a fair point,BUT and it's big but in this case.Your point about rates being low has been applicable for a good 4 years now and in any of those years that same 'threat' of risk re rates rising has been used by many people has a reason to stay liquid and basically uncommitted.
Fair argument because of course the day is likely to arise that such an argument will be a lot more pertinent and pressing than it appears today.However, we cannot really makes worthwhile guesstimates quantifying these issues much further out than the end of our nose.That's why we make our play and monitor it,and adapt it where neccessity to do arises.As it stands it's not an unreasonable view to say that rate rises of the magnitude that would constitute such a neccessity do not appear immediately imminent.When perceived to be so then a different tune may be sung. In addition, I really would never use a phrase about investment ,to quote DD, that they would be held until "the end of time". Where fundamentals change sufficiently that "time" can always be a lot closer to hand than it appeared when the money origianlly hit the table.

Re buying up productive assets.I could equally have pointed at private equity sucking out the cherries in the market place leaving only the pips for general consumption. I could have cited the large corporate balance sheets finding the most worthwhile immediate investment to be to retire theirown shares ,or debt load etc etc. All of this type of activity when rolled together ultimately reduces the 'float' of what may be picked at by future buyers and I do think it's a valid issue for concern for people to consider if they think a valid strategy for dealing with our ongoing wall of worry is to try and stay risk free awaiting some future moment when the clouds will magically clear and present them with the value opportunity they have been waiting for for so long.
I could wax lyrical on the unperceived costs they will incur long beofre they get that opportunity,but typically I find people don't wish to hear about thoseas they are harder to understand.

Finally,life can be so perverse that as you get older you seem to need so much less sleep thus creating so many more hours in which to be productive at a time when the material fruits of such productivity are required ever less.I'm sure Confucius may have had something to say about that .

Leftback said...


LB's linguistic confusion stems from being an Englishman in Noo Yawk. We are actually very lucid after we have had a skinful, though.

One more data dump before enjoying the delightful Fall weather and before we enter the fray once more on Monday. Chinese exports actually rose.

China Exports Up 9.9%

This is what one might expect if: a) Chinese factories are not idle and b) Chinese customers in Europe and US are in fact still alive and buying stuff, as several of us here had suggested. Soft landing?

Anonymous said...

That increase was mainly led by exports to the US as Apple already had begun importing iPhone5 in large volumes. Nothing new here.

Go check out the exports to Europe. Down 10-11% from year ago levels.

The breakout just like the S&P and Nasdaq breakout after Draghi and the Ben show? Hmm, where are we trading now?

amplitudeinthehouse said...

Free time over the weekend threw up some interesting ideas when going through the charts,.......that is......beautiful........what a weight lifted from my we're traveling into year...the end..


Anonymous said...

Love Barron's cover page this weekend.

"Almost There - Dow 14,165".

Anonymous said...

Ol' Dirty Bastard says...

LB @ 7.11 (nice time to post btw)

Interesting link but too many homemade "I told you so" Bbg indices for my taste. Call my an old cynic but I am always skeptical about confidence and similar inexpressive indices cooked up by those guys (who basically make a living from stating that the streets get wet because it rains outside while people carry umbrellas all day long). I would prefer "hard" data like industrial orders and similar stuff.

Just my 2 bps worth of rant

Anonymous said...

C Says'
The FT Alpha Chinese wrap on Chinese data was well wroth a read and from a personal viewpoint I was satisfied by it.Basically if you are trying to take bite before before the crowd you'll attribute a different emphasis that data that is the fuel for what happens down the line and less to the data that you find to be algging. Hence ,my statement of satisfaction because the side of the data was imo good enough to warrant my interest for the position currently assumed.

Anonymous said...

I'll have to try type a little slower .The typos in there make it look as though it was typed by Ernie the Ape !

amplitudeinthehouse said...

Key week for the Spoos, even though it becomes a little trickier during the earning releases, I feel satisfied that sitting out the last couple months may be about to workout just fine..this week may let us know if swinging the wide edges into next year is the way to go...

ps..C, your worried about typos? taking the piss out me?

Leftback said...

Another Monday goes to the Bears:

Down On Monday

Media bearishness is almost deafening now that we are down a big 3% from the peak. Yet the market seems to be merely bored by proceedings. The really big flood of US earnings reports starts tomorrow, so unless there are a lot of misses, the apocalypse may have to be postponed.

I don't fancy yours, mate, especially if it is HY:

High Yield Bubble?