Tuesday, February 28, 2012

ECB + LTRO = Mr. Creosote?

It's time for the European equivalent of the US Non Farm Payrolls Lottery. Roll up and guess a number. Yes it's LTRO time, or the baby Eltiaro as we prefer to call it. Now rather than join in with the guessing of how big it will be, we would rather jump directly to the market impact and nearly everything we have read suggests that, whatever the number, it will be taken as good news. Which to us is a red flag signalling that the market is more likely to come off after the event than scream higher, so we are happy to sit with our call from last week that this will mark a bit of a turning point. But we have to say the US data continues to stun on the upside, even if we are wondering why the US consumer isn't worrying about gas prices. Were they THAT strong?

But back to the LTRO. With the ECB consuming all sorts of toxic waste in such huge quantities in exchange for liquidity, we are somewhat reminded of that rather unpleasant scene from Monty Python's "The Meaning of Life", only here The ECB has become Mr Creosote.

MARKET : Oh, shit! It's Mr. ECB !!

MAITRE D: Ah, good afternoon, sir, and how are we today?

MR. ECB : Better.

MAITRE D: Better?

MR. ECB : Better get a balance sheet I'm going to spew liquidity.

MAITRE D: Uh, Gaston! A balance sheet for monsieur. There you are, monsieur.. [goosh] Merci, Gaston.

MR. ECB: I haven't finished.

MAITRE D: Oh! Pardon. Gaston! A thousand pardons, monsieur.

MR. ECB: Uhh.

MAITRE D: Now, zis afternoon, we have monsieur's favourite: Ze Greek bonds. Ze Greek yield is very high, and ze coupon is very rich with olives, anchovies, Ouzo, Feta , and promises to repay. Thank you, Gaston.

MR. ECB: There's still more.

MAITRE D: Oh! Allow me. A new balance sheet for monsieur,...[goosh] ...and ze liquidity mopping up woman,... and maintenant.
Would monsieur care for an aperitif, or would he prefer to order straight away?

MR. ECB: Oh.

MAITRE D: Uh, today we have, uh, for appetizers: Excuse me. Mmm. Uh, Ze Bouni Poliennali Del Tesoro pasta, Bonos y Obligaciones del Estado paella, Obligations Assimilables du Trésor (Zat iz Oats and frogs' legs with more Oats), or Portuguese Obrigações very delicate. Very subtle.

MR. ECB: I'll have the lot.

MAITRE D: A wise choice, monsieur. And now, how would you like it served? All, uh, mixed up togezer in a special Long Term Refinancing Operation?

MR. ECB: Yeah,... with the Greek short end on top.

MAITRE D: But of course, avec les toxic-waste.

MR. ECB: Yeah, and don't skimp on the 5 year.

MAITRE D: Oh, monsieur, I assure you, just because it is mixed up wis all ze other things, we would not dream of giving you less than ze full amount. In fact, I will personally make sure you have a double helping. Maintenant quelque chose a boire. Something to drink, monsieur?

MR. ECB: Yeah, I'll have 80 yards of the Spanish auction.

MAITRE D: Eighty..

MR. ECB: ...and a double Jeroboam of the Italian 2022.

MAITRE D: Bon, and the usual French car company?

MR. ECB: Yeah. No, wait a minute. I think I can only manage sixty billion today.

MAITRE D: [tut tut tut tut] I hope monsieur was not overdoing it last month..

MR. ECB: Shut up!

MAITRE D: D'accord. Ah! Ze new balance sheet and ze liquidity mopping up woman. [goosh goosh goosh goosh] Monsieur, is there something wrong with the repayment?

HOLLAND: No, the repayment was excellent.

MAITRE D: Perhaps you're not... happy with the service?

HOLLAND: No, no. No complaints.

GERMANY: It's just that we have to go. I'm having rather a heavy PR problem.



HOLLAND:- And... we... have... a... domestic issue to cope with.


GERMANY: Oh, Yes. Yes, of course. We have a domestic issue to cope with and I don't want to start bleeding in the polls. Ha.

MAITRE D: Oh! Very well, monsieur and madam . Thank you so much. So nice to see you, and I hope very much we will see you again very soon. Au revoir, monsieur. [clunk] Oh, dear. I have trodden in monsieur's balace sheet.

MAITRE D: And finally, monsieur, a wafer thin piece of 10yr Greece?

MR. ECB: Nah.

MAITRE D: Oh, sir, it's only a tiny, little, thin one.

MR. ECB: No. Fuck off. I'm full.

MAITRE D: Oh, sir. Hmm?

MR. ECB: [groan]

MAITRE D: It's only wafer thin.

MR. ECB: Look. I couldn't buy another thing. I'm absolutely stuffed.

MAITRE D: Oh, sir, just-- just one.

MR. ECB: [groaning] All right. Just one.

MAITRE D: Just the one, monsieur. Voila.

MR. ECB: [groaning]

MAITRE D: Bon appetit.

MR. ECB: [groaning]

[Creeek ...... Kaaa............Booooommm]

MAITRE D: Thank you, sir, and now, here's ze check.

Monday, February 27, 2012

TMM's Oscar for Best Picture

And the nominees for Team Macro Man's Best Picture are

              • The Artist

As the era of silent debate draws to a close, two actors find their careers and their relationship influenced by the coming of open debate. While popular screen star North Korea resists the transition to openness, Myanmar embodies a modern age that is leaving North Korea behind. China meanwhile appears to embrace the new format, but secretly does what it can behind the scenes to prevent its success.

              • The Descendants

The complexities of life, death and family relations challenge a man faced with losing his partner.  When Mervyn King is left comatose following an accident, his partner Charles Bean finds himself thrust into the unfamiliar role of caretaker to their two economic policies, while at the same time facing a difficult financial decision that may put him at odds with other family members.

              • Extremely Loud & Incredibly Close

A young EU member who may have Asperger’s syndrome must deal with the loss of its  economy when they lose their old Prime Minister on November the 11th.  When young Papademos discovers a key amongst his predecessor's possessions, he becomes convinced that finding the bank account it opens will help him understand the tragedy of his economy's death.

              • The Help

In the politically charged climate of Wall Street in 2011, a young journalist convinces a group of Junior Associates to relate their experiences working in investment banks.  The stories they share reflect the devastating social inequality governing every aspect of life in Investment banks, and place the workers at risk of reprisals from their employers.

              • Hugo

Hugo Chavez is a global orphan who lives hidden away in the vast South American continent thinking it is the 1930s. When he is not eluding the world's watchful inspectors, he is secretly keeping his many secret police running, or tinkering with global oil production using tricks he learnt from his political father Castro. The only thing that he has left that connects him to his father is an economy that doesn't work; Hugo observes the lives of the people who work in his country, very closely, and ends up stealing parts from an irascible nuclear toy shop owner Mahmoud Ahmadinejad

              • Midnight in Paris

On a trip to Paris with his fiancée, a young politician is filled with nostalgia for the Paris of the 1920s, when  the French Communist party was formed,  the water in the taps was undrinkable, vast number of immigrants from Eastern and Southern europe arrived and the decade finally ended in economic crisis.  For Francois Hollande, the romance of that bygone era exerts a pull that places him increasingly at odds with the impatient unimaginative current president.

              • Moneyball

Following a devastating loss to a rogue trader in the 2011 payoffs, UBS general manager Kasper Villiger and his assistant, Sergio Ermotti, devise a statistics-based formula for choosing potential trades.  Uncertain of his chances of success and following a plan that flouts conventional banking wisdom, Villiger sets out to rebuild his team with classics majors he finds playing professional poker

              • The Tree of Life

A middle-aged man’s contemplation of the pattern and meaning of his life is interwoven with moments from his past in a  bank. As Polemic and his two younger bloggers grow up, they are shaped by both the nurturing love of making shed loads of money and the capricious unyielding nature of market moves in G10 FX.

              • War Bond

The horrors of default are seen through the eyes of a Greek bond whose young owner must relinquish him to the EU at the start of the Greek default.  Separated from the fund manager who has raised and looked after him, Gee-gee Bee enters the default as a single A credit, but is soon plunged into the nightmarish heart of the conflict.

...and the winner is...

War Bond !

and welcome on stage to collect the award  - the owners of Greek CDS

"We would just like to thank all of those that have made this default possible. First, the producers - my good friends the Papa brothers; the director - European policy; the banks that managed to tie us all in; the investors who thought it was risk-free; the ratings agencies; Angela Merkel, of course, who made a short story long; ISDA, whose procrastination and diligent behind the scenes work with the ECB failed to halt the project; and, of course, special thank you goes to the Greek people themselves, without whose profligate spending and lack of personal responsibility this story would not have been possible. Thank you"

Thursday, February 23, 2012

Page 23 and the Horoscopes.

TMM have decided that we are in a cycle of news where the front 4 pages of national newspapers really ought to be empty as most front page stories really don't deserve to be any higher than page 5. So with this system in mind here is page 23 and the horoscopes -

TMM have woken this morning alert and refreshed after yesterday's gloom and an early night with many hours of sleep combined with a really late night at the pub getting completely sloshed. But that's the pleasure of being more than one person. We can enjoy all modes of evening out in a quantum state and only work out which one we had when we observe the outcome in the morning. And today? We are fine, cheery and ready to go (shut up C, go and get a bacon sandwich, you'll feel better later).

Well it is now officially summer in the UK - It's light before 7am and an official drought has been called, which is good news because when that happens it normally starts pouring with rain, as it did yesterday afternoon. As one great friend of ours said to us after being in the country for a year from South Africa " Ach! England- - Eight months of winter, followed by four months of shit weather". Quite, or it was until the UK Government spending cuts meant no rain. Didn't you know that's what is causing the drought? Have you seen how well it correlates? Go on BBC, we dare you to try that one.

So what are we doing today in the markets. Nothing. One of us decided that enough was enough in the equity rally and whether overcome by a complete attack of cabin fever "Its too quiet I'm going mad I have to do something" or just having ridden such a good up wave, has binned all their equity holdings. Now don't get overexcited, this isn't looking for the big downy, just a last hurrah for the bears as mentioned a couple of days ago and a pre-empt of any LTRO based selling. JBTFD (see glossary) still rules the roost. And those of us with bigger knadgers (cahoonies) are staying in prepared to ride any wave as the wall of worry is about to be climbed.

Other things? Errr.. Horoscopes anyone? It's getting to that point where, as usual with a lack of defining news, technicals are wheeled out and the pick-up-sticks lotto of trend lines and "my pencil line is more important than yours" bravado kicks off. So perhaps we ought to look at the horoscopes too. We mean that if we look at Bradley Siderographs (which we own up to doing now and again, only because a large chunk of players around the table are supremely superstitious and do throw proper money behind things like moon cycles) then why not look at real horoscopes. Complete cock of course, but its surprising how many sane people we know who try to believe in them. Here's a good fact - If the gravitational pull (of the planets) at your birth has an input on your character, then best you make sure the obstetrician is standing in the right place because his gravitational pull on you is going to be greater than that of the furthest planets. Don't you just love the inverse square rule? "Oh I'm a Gemini with water cooler in the upper quadrant".

so here we go ..

Aries - As a Ram you are wooly thinking and have large horns. Buy gold and shout about it a lot.

Taurus - As a bull you must watch out for chastisement in the blogosphere and be prepared to be accused of being a member of the illuminati. Buy SPX.

Gemini - Twinning really isn't good unless you believe American frat house movies. Sell covariance and buy correlation vol.

Cancer - Doesn't sound good. Have you thought of getting your star sign changed by deed poll? Trade spot.

Leo - As either a lion, a 1970s club singer or the 2 year old child in a wealthy family. Buy cattle, gold medallions or a career at a merchant bank.

Virgo - Have you done this before? We guess not so buy CDO squareds on subprime mortgages , trust us, you'll be fine and it won't hurt.

Libra - You are balanced with the scales equally weighted on either side. Become an Economist and don't make any attributable forecasts.

Scorpio - As a large far eastern central bank. Buy what ever you like it will just go up and if it doesn't change the rules.

Sagittarius - your archery skills will come in useful sticking people in the back as the banking pond dries up and you need to survive. Sell your colleagues down the river.

Capricorn - Your goaty digestive system will come to the fore when your hedge fund loses the rich 20% and is forced to survive on the subsistent 2%. Short vol and buy a smaller car.

Aquarius - Waterboarding is not allowed so stick to traditional methods to extract insider information from your contacts. Buy whatever they suggest with their last dying breath.

Pisces - Something fishy going on, expect a call from the FSA but be pleasantly surprised when they just rap your knuckles for not completing your 200hrs of mandatory regulation training and yet miss the 4bio of 88888 account tickets in your bottom draw. Go short your own institution.

With that TMM hope that whatever your talisman or totum, it brings you wealth and happiness - however much bollocks it really is.

Wednesday, February 22, 2012

Losing one's conviction

Team Macro Man are really struggling. Struggling to find something to say that they haven't said already and struggling to work out why the world is so full of people we just don't agree with. We are not talking solely markets, we seem to be surrounded by them in life in general. It must be us. Perhaps we need to adjust our sense of the new normal and get with the program. But we can't.

It is all too easy to launch into a vitriolic lambast of all we think wrong, but we don't want to rant, so the logical answer is "lay down the cogent arguments for why things are wrong and what needs to be done to right those wrongs". But why bother? There are blogs all over the world with reams of well argued points that stretch to novella length, but does anyone in the blogosphere really read those things fully through, especially if they don't agree with the first paragraph? To this extent a blog post ends up either preaching to the converted or lines itself up for a kicking. So what's the point.

To TMM it appears that the blogosphere is becoming a general armoury for supporting wars that are more and more partisan. You can see it in the markets. Either everything goes to hell in a hand basket (quote ZH all day) or it isn't and quote err... Actually this is another important point -The blogosphere has a massive skew to end-of-the-worldness. Those that have lost all interest just don't even bother with reading blogs at all. How many people actually have their opinions changed by what they read, rather than reinforced? Maybe it's just us but at the moment there appears to be little interest in either reading or writing and opinions of quality are either not being expressed or people have nothing to say. Like us.

So what do we do? We aren't going to write reams of boring research, that's what research people do and get paid for, so we will leave it to them. We aren't going to list our portfolios because that's our business, so we are left either with the light-hearted pieces to fill the time (which, to be honest, are the bits we enjoy most) or we don't write anything. As you might have guessed this is why posts have dried up to an extent.

Since TMM have taken the reins from MM the world has been on one rocky ride, but things are now beginning to settle down. Whether as a calm before Storm II or as a general exhausted flop we don't know, but for now we are at slack tide where correlated trends will drift apart as the flow comes to a halt with the only movement in side eddies. As markets stabilise focus and diversification starts to occur. Investors adventure out of the door of "risk on/risk off" and start to look at nuanced fragile cross trades that aren't going to get torn apart by a global meltdown. Shouldn't be long before the buy-side starts recommending all sorts of exotic stuff designed to lever up some return in an otherwise not moving market. Death by x-axis spawns leverage and leverage just starts the cycle again. USDJPY is a classic example - it does nothing for eons, vols fall, VAR measures fall, options are built around it not doing anything and then BOOM - we have another "where did that come from" moment, accompanied by the normal "told you so's" and "this is stupid's" from those left playing.

Sell vega, buy gamma?

TMM are down and don't know if anything in finance will cheer them up.

Tuesday, February 21, 2012

Cooking with Gas

Do you think Juncker was singing David Bowie's "Cat People" after last night's Greek negotiations?

Still this pulsing night

A plague I call a heartbeat

Just be still with me

Ya wouldn't believe what I've been thru

You've been so long

Well it's been so long

And I've been putting out fire

with gasoline

Putting out fire

with gasoline

Which is basically the sum of it, but, as we have pointed out before, the fight has moved one level lower down and now it's between the Greek Parliament and the Greek people, rather than between Europe and the Greek Parliament. What is obvious, though, is the ridiculous nature of what the negotiations have revolved around: the reduction of debt/GDP from 129% to 120.5% by 2020. That's eight years away in an environment where one can't even forecast GDP to the nearest 3% in any 3month period. What is the point? Well, we know the point, it's to keep the rule setters up north happy, but to Team Macro Man it's just another classy example of Benchmarks being Bollox. But in the short term it does move the boiling cauldron of Greek carcass stock to the back burner, where it can continue to simmer whilst the market tries to decide what's next to prepare in the recipe of Global Macro.

Team Macro Man are not that bothered by G20, but instead are looking through to next week's LTRO, which they see as a bit of a landmark event and as the potential catalyst for a change in trend (or at least a shake down). Readers will know that TMM have been believers that the LTRO is a powerful tool that is effectively decoupling bank risk from peripheral sovereign risk and so creating a fire break between a perceived default and the real economy via banks. However that doesn't mean that the short term response need be positive.

China - On simmer at the moment, but the market may well try and bring it to the boil again and it will get more airtime in the coming weeks. But unless it falls over completely (which we are NOT expecting) there is little risk of any Asian wobble being anything more than corrective. Of course this will probably lead to the overly long spec positions in AUD being unwound with associated screams of anguish and pain, but the background longer-term is not unconstructive and with ref to our Equity calls for 2012 we are looking at ASX shorts instead.

But back to the short term, it feels as though everyone wants to "sell the fact" but rather than jump on that bandwagon we would rather fade today's dips saving our ammo for next week post LTRO.

Thursday, February 16, 2012

Thursday Ramble

Captains blog, star date - Greek resolution minus 1000 years.

Are we allowed to be bored of the Greek situation? Or is that to admit defeat to the Eurostriche policy of death by x-axis? A policy which is starting to take its toll on the finance industry as the cancer of fixed costs yet falling returns is starting to see a new involuntary exodus from the Street/Rue/Place/Wharf. Equity sales is particularly rough. Last one out please switch the lights off.

Talking of lights TMM has for the last year or so, been trying to upgrade the 500 gigawatts of halogen light bulbs scattered around TMM Towers to LED replacements having noticed that the large direct debits hitting the current account aren't shopping or child phone bill related, but the monthly electricity bill. Ouch. In fact TMM are noticing they are not alone as social company now regularly involves male moaning about electricity bills, even if most spouses appear oblivious or dismissive of trying to control spending on one of life's "necessities". But change does appear to be underway and discussion over which LED bulbs are best is now almost acceptable dinner table talk.

Due to TMM's tight-fistedness married with an inherent belief that every major shop chain in the UK works on a pricing structure based on piracy, TMM have, in quiet moments, been picking the equivalent of LED lottery tickets from the internet and one by one trying to find the ultimate bulb. But the process has been laborious to say the least as each new experimental bulb is judged by Mrs TMM to make everything look too dim, blue, green or washed out. To be fair we do agree, but 500W down to 50W? There is a price for everything, even having your skin made to look like zombie flesh. But we would be very grateful for any links or advice from anyone who has identified the ultimate 50W halogen spot replacement bulb that gives similar light, a healthy hue and doesn't cost 30 quid each? If so please let us know, we are sure we are not alone in this search.

Sorry for the diversion there. Today's Euro fall has of course been accompanied by a fall in EUR/CHF and though TMM do not believe that the SNB will let the floor go (well this year anyway), they were snooping around some SNB pages for any clues and stumbled upon something unrelated but interesting none the less. If you inflict negative interest rates on your average depositor TMM have always imagined that it makes sense to keep the money stuffed in your Sealy Posturepedic ATM mattress rather than paying your local gnome to look after it. And here is the proof that this is happening. That's a LOT of 1000CHF notes in circulation and despite the exorbitant price of a coffee in a swiss service station we don't think they are all being used in shops.

Sorry that was a bit of a ramble but though the search for lights may be new our search for alpha remains pretty unchanged. The shorter term correction is occurring which to us has FADE stamped across its forehead (this morning saw perma-bears remerging from their caves as if it was a bright spring morning). The Apple being William Tell'd last night is just not important. So plus ca change at TMM Towers.


Note .. Since starting this ramble things have indeed started to go bid which just proves - the moral of the story is to load the boat when you get sent a chart of [insert risk asset here] overlaid with AAPL.

Tuesday, February 14, 2012

2012 Non-Predictions - Equities

Well TMM must apologise for their laziness this year in getting their Non-Predictions out. To be honest, we have found it pretty hard to get excited about anything: the backdrop since the beginning of the year of improving data, particularly in the US, sitting uncomfortably aside continuing Eurobllx is unchanged. TMM really have run out of ways of writing the same thing over and over... what can we say? Please Mr. Market, can we have something new to get our teeth into? Anyway, we managed to drag our sorry arses out of our lethargy and do some work.So TMM present, embarrassingly late, their 2012 Equity Non-Predictions.

1) EM Equities will NOT repeat 2011's under-performance of DM Equities.

Last year, TMM judged the worsening inflation picture in Emerging Markets and associated tightening would prove challenging for EM Equities, and the mid-year spike in risk aversion dealt an even bigger blow to the asset class as cross-border equity flows reversed for two consecutive quarters - an event not seen since 2008. But TMM reckon that the picture looks a bit better than prices would perhaps reflect, even accounting for the large move higher seen since the beginning of the year. TMM hold that EM equities are rarely a trade on "the next big thing" and whenever they hear market participants begin to talk about "decoupling", large alarm bells go off in their heads. Instead, TMM reckon that EM/DM relative equity performance is driven by a combination of relative growth, inflation & money supply growth, as well as the global inventory cycle. The last of these - despite both the gallant attempts of the BRIC crowd and Europe-bears to argue otherwise - seems to be purely driven by the US.

Using this basic framework, TMM have been able to describe a good part of market moves (see below chart). In 2007-8, the Great EM Decoupling Experiment first led to very strong EM out-performance, before the inevitable global linkages branded this experiment a complete failure, as EM equity markets crashed, playing catch up to their DM cousins. While the fit is not perfect, since mid-2009, the model has basically come back into line with performance, except for the past six months - driven, as noted above, by cross-border repatriation spurred by Euro-break up fears. But in recent months, TMM judge the EM growth/inflation mix to have improved significantly, as base effects left over from the Arab Spring and momentum in food prices wane and the US inventory cycle spurs renewed production (and export growth) in Asia. And even though EM equities have put in a sterling performance this year, TMM's model would suggest the out-performance has further to go.

TMM were lucky to catch most of the move up in H-Shares in January but are now flat, hoping for a pull-back in order to reset such trades expressing this theme.

2) Equity Bears will NOT stop trying to argue that earnings will fall as a result of margins contracting from multi-year peaks, but S&P earnings growth will NOT disappoint the consensus of 5.5%.

If TMM had a Pound for every time they have heard the argument that earnings have to fall as a result of margins peaking from multi-year peaks, they would have little need to stay in the hedge fund business. The trouble with this argument is that (i) TMM have been hearing it for many years (which, admittedly, does not mean it is wrong), and (ii) certainly over the past 15 years, TMM reckon the evidence suggests that it is the economic cycle rather than margins that determine whether earnings fall or not. The below chart shows TMM's naive earnings model which uses ISM, input/output prices, corporate financing costs, wages & the Dollar to try and explain earnings growth. The model missed the 1998/9 Russia/LTCM-driven fall in financials' earnings (i.e. - not having a financial crisis-type variable in it to explain investment bank losses), but largely appears to do a reasonable job. So TMM's point here is that if you are looking for earnings to fall, then it's going to come from either another financial crisis (probably in Europe) or a double dip back into recession.

As readers know, TMM reckon the US recovery now has exit velocity, so they judge the latter as being unlikely. Regarding the former, TMM have noted before that it is entirely rational for markets to price in the very large tail risk emanating from Europe, but they cannot be fixated by it permanently. We judge a good deal of the global de-rating in the latter half of 2011 as being related to that, but as time passes and (hopefully) growth returns to Europe, that risk premia will be taken out, sending the S&P500 from the 12-13x earnings range to the 13-14x range. For the time being, the strategy of buying dips in the S&P seems the right one.

3) The ASX 200 will NOT reverse its poor relative performance and will remain a laggard of global equity markets.

This particular Non-Prediction is related to one of TMM's rates Non-Predictions: "The RBA will NOT cut more than 25bps and the Cash Rate will also NOT finish 2012 below its current level of 4.25%". Last week's RBA decision seemingly confirms the reluctance of the RBA to cut, and with the currency sitting close to multi-decade highs it is clear that monetary conditions in Australia are relatively tight. This is not surprising to TMM as, one of their ex-colleagues one surmised, the RBA care first about China, second about the global environment (i.e. - Europe, right now) and last about Australia. Sorry, TMM will correct themselves - they care about Australia *second to last*, with New Zealand occupying the last slot. But cheap jokes aside, the anecdotes regarding the potential hollowing out of the domestic economy by the mining sector - i.e. Dutch Disease - are not to be ignored.

The trouble is, that these effects tend to take years to play out in their entirety - for example, witness the crowding out of both the domestic & export sectors that high financial sector Terms of Trade in the UK managed over the past decade. It took many years for the over-valued Pound to eventually collapse. That experience (TMM tried shorting Betty repeatedly between 2005 & 2008 to no avail) forced TMM to look elsewhere. If you think the domestic economy is getting smashed, then you need to trade something linked to the domestic economy. The closest liquid proxy seems to be the ASX. It is not perfect as still close to 30% of its weighing is materials/energy, and whether true or not, the perceived link to China could well give it a lift should the Chinese economy roar back above trend again. TMM haven't completely figured out their implementation here, but would assume that selling ASX vs. US/Japanese equities and buying calls on Chinese H-Shares could be one good way of playing this.

And with that, TMM will wish their readers a Happy Valentine's Day.

Monday, February 13, 2012

Don't know Monday

Team Macro Man have been sorting out stuff for the past few days and, to be honest, have been having a bit of an internal debate as to "what from here".

If you were to look at the deep underlying currents of the markets (or the carrier waves of the signal) we are still very much in the "it goes higher camp" for equities. It feels as though there is the start of a sea change in the investment cycle with the old 7 year cycle of Equities->Commodities->Bonds seeing the phase of bonds to equities taking place. It also looks as though underweight funds are chasing the markets getting in high beta to try and get back to benchmark. All supportive bigger picture.

With that in mind we are happy. But once again we are looking at shorter term. The Greek problem is one step closer to its final battleground, with the confrontation having moved from Europe vs Greek Government to Greek Government vs Greek Population. Team Macro Man have to say that lowering minimum wage is a no brainer when trying to get people doing something useful with their time (something the UK should follow suit with).

But Monday morning euphoria is pretty muted considering the consternation bubbling (no pun intended) up at the end of last week. Our internal debate has focused upon how many longs were canned in the run up to the weekend vs the number of longs re-established since the agreement. On the whole we are thinking that though the background current is positive, the lack of lift-off (we are only back to where we left it thursday) has us thinking that a correction in risk is due. No facts, no clever figures, just a handful of gut feelings and the type of folks who are bullish. On that point AUD is leading the way. The new flush of "it can only go up, mate" comments after the RBA inspired spike to 1.0800 had TMM going "wooohhhh" in unison.

So, to be honest, the best thing is probably to sit on our hands, since we lack conviction and clarity either way. Long core positions happily long with the spivvy portfolios trying to short with stops above recent highs in eur/usd and spx. However, to be totally spivvy we will likely do it at the usual afternoon time today.

Tuesday, February 07, 2012

The 19 Stages of the Bristol Pound

Things remain pretty quiet in the markets and apart from the RBA deciding not to cut rates but instead fuel the fires of dutch disease, Team Macro Man have been left to trawl through the smaller stories in the press.

The background theme of potential Euro break-up has provoked turbid debate as to how the introduction of local currencies could be managed without cataclysmic step change wrecking the domestic economies, so TMM were amazed to find that the UK city of Bristol has decided to leap-frog Greece and Portugal and plow ahead with the introduction of its own currency. TMM assume that Alex Salmond and his Scottish colleagues are watching the project with keen interest.

Of course, introducing local town currency is nothing new, but when one reads the resume of its creator, and knowing the qualifications needed now to even mention a new product in the City, we wonder why the FSA haven't already locked him up. Yet somehow the project is ready for launch. Now TMM have had a bit of experience in the currency markets and so would like to make their own predictions about the probable life cycle of the Bristol Pound.

We give you Team Macro Man's "19 stages of the Bristol Pound".

1) Bristol shopkeepers decide that their high street demise has nothing to do with a lack of shops that people actually want to buy things in, the internet, no parking, or cheaper prices from out of town super-centres but is due to having to use "bankers' fancy money" and so decide to make and use their own.

2) Bristol look for their John Bull rubber printing set, last seen in Toby's toy box in 1976, give up, and instead run a competition between 5 year-olds to come up with the simplest, most forgeable design possible and run it off using the printing service at Boots the Chemist.

3) The new Proud Bristol Pound is launched to gullible shop owners and the odd major supermarket who feel they have to go along for PR reasons but won't accept more that 5 or them per £100 of groceries and even then charge a 20% "handling fee".

4) All runs well for a month or so with local pride swelling. Some people especially appreciate the benefits of the new currency - mostly those who notice that there is no column in their tax returns entitled "Earnings denominated in Bristol Pounds".

5) Someone notices that the Bristol Pound is actually just like a normal pound with the drawback of only being accepted in a handful of shops that they wouldn't normally go to (remember - that's why it was created).

6) News spreads and folks start exchanging their Bristol Pounds for the universally accepted British pounds. Meanwhile, others have noticed that photocopying them is not that illegal and a run starts on the Bristol Pound.

7) Questions are asked and newspaper articles appear showing the frail and elderly freezing in squalid garrets surrounded by piles of Bristol Pounds that they had been persuaded to buy in the Post Office. "SOMETHING MUST BE DONE!"

8) But help is at hand... Reuters Headlines:


9) A news headline temporarily stays the markets:


But hope is then dashed when followed by:


10) Bristol introduces capital controls. Road checks on the M4 and M5 stop and ask motorists if they have any Bristol Pounds that they are taking up to "the big Smoke" and then onwards to "those off-shore folks, probably on the Isle of Wight, as the Lundy lot are OK and mostly seals".

11) The United States accuses Bristol of currency manipulation and demands an immediate devaluing to its true value of "toilet tissues" from the artificially maintained level of "chip wrapping".

12) Bristol buys a second hand HP Photosmart C7280 All-in One printer off Ebay and starts to print more Bristol Pounds (as it worked for the USA). Builders merchants and garden stores praise the policy as wheelbarrow sales explode. However, Zimbabwean economics sees Boots run out of printing paper.

13) Bristol realises that printing more Bristol pounds is the wrong thing to be doing and calls the Bank of England for some British ones instead.

14) The Bank of England offer to help, realising that Bristol is on the way to their holiday homes in Cornwall and that trouble in Bristol could add an hour each way to the journey. A delegation is sent, which soon discovers that the local bookie, Jim, having volunteered to look after the British Pound reserves, had paid them out against a 30/1 shot that had come in on the 4.30 at Haydock the week before.

15) The Bank of England and the counties of Avon, Somerset and Gloucestershire insist that any aid is accompanied by austerity measures for Bristol, to include half-day closing on Wednesdays, the sale of the "Great Britain" steam ship and 20 points off Bristol Rovers and Bristol City's league rankings, with all local teams being made to play in their underpants when a mid-level administrator at Bristol Council misinterprets the ban on short selling.

16) Riots break out and marches are organised to London, but the launch of a new Bristol rescue bond backed by Greece and Portugal and the swift reintroduction of the British pound swiftly restores calm.

17) Bristol shop keepers moan about the lack of trade once again (wheelbarrow sales plummet) and blame the fat cat bankers who forced them into having to introduce their own mickey mouse currency in the first place.

18) Jim the Bookie is not allowed to keep his bonus.

19) All is well

Monday, February 06, 2012

Death by x-axis

The cosmic background radiation of the US payrolls is still echoing around the financial universe but today's other archaic story echo is the Greek PSI Deal (or No Deal). More of the same from Greece as the party leaders reject yet more austerity in order to satisfy the Troika. This time, it does seem as though though "this is it", as murmourings last week and at behind the scenes at Davos suggest the EU/IMF have last patience with Greece and that post the ECB's 3yr LTRO that a firewall of some degree is now in place to cushion the blow of Greece being cut loose. Now, TMM certainly don't agree that a firewall is in place to allow such an event to proceed contagion free. But it does seem as though the Troika - and the Germans in particular - have come to the point of being willing to risk it. That concerns TMM.

But equally, it also appears that the political leaders are more open to negotiating this time around, in stark contrast to the class A twit Samaras' usual hotheadedness. This is encouraging. Indeed, the report from Papademos' office suggesting broad agreement for 1.5% of consolidation would tend to support a favourable outcome. By that, TMM mean "any deal with the Troika". The problem is, that "any deal" is unlikely to be a particularly good surprise for markets, while a collapse of negotiations and the Troika leaving Athens aboard a plane this evening would be highly damaging to asset prices, at least in the short term. It is not hard to imagine talk of an imminent Greek Euro exit sparking panic - regular readers will know TMM's view on whether or not a Greek Euro exit can be managed without catastrophe

Now, TMM reckon that even the Greeks are not *that* stupid, and that we will indeed get a deal, with all that it entails: the PSI, disbursement etc etc. But the more unfavourable outcome cannot be written off and should it occur, TMM will be selling.

That said, for the moment let's assume that the deal goes through. Bears have been doing their damnedest to try and hype up the potential for another bailout programme for Portugal that may include PSI, following the well-rehearsed Domino Theory. And while it is not hard to imagine Portugal needing another programme at some point, it has managed so far to meet its fiscal targets - albeit by raiding the pension funds. TMM digress. Let's assume that Portuguese bonds remain under pressure. Today, this article has been doing the rounds, reporting that Portugal is considering going down the restructuring route. What does that mean for broader markets? Well, TMM would note that the Greek & Italian contagion events in May 2010 and August 2011 both occurred when the economic data globally had begun to disappoint, and positioning in risk assets was quite heavy both in the leveraged and real money space. TMM would point out that it is hard to argue that such a backdrop currently exists: the economic data has been surprising to the upside globally and positioning is still significantly underweight. It is difficult to get broader market contagion under these circumstances.

So TMM reckon that, Greece deal permitting, Portuguese concerns are unlikely to take hold of markets immediately as risk creeps higher into the LTRO at the end of the month. With positioning likely to be larger then and the "surprise factor" from better data largely digested that Portuguese contagion is more probably a story for March.

But for now TMM suspect that the market will to continue to suffer "Death by x-axis". Every time the markets determine a "must be solved by date" those involved procrastinate right through it and yet the world does not melt, the trains don't stop running and the lights don't go out (though of course the threat of that in Athens is getting closer).

Friday, February 03, 2012

Spring has Sprung

Spring has sprung
The data's riz
I wonder where the bearies is?

They say the bears are on the offer.
But that's absurd
The offer is on the bears.