Thursday, May 31, 2012

If TMM ran Europe

There is a Carlsberg advertising theme that has been running for years that is on the lines of  "If Carlsberg did xyz" followed by some Utopian version of xyz. We don't know if it's our desire for a cool lager or the mess in Europe that has triggered us to do our own version, but here it is.

If TMM ran Europe

- London would be where Cannes is.
- The European Parliament would be in Athens.
- Current political leadership of Eurostriches would be freed onto the African plains.
- New political reps would have votes allocated on issues dynamically by "Likes"or "Followers".
- Switzerland would be included and stop pretending.
- UK would leave the EU and join NAFTA.
- The ECB would be in Bangalore.
- Policy makers would sit on trap-doors over shark tanks on 1 min time triggers only over-ridden by them making a decision.
- "Ocean Finance" would consult Spain.
- The Bundesbank would be a water park.
- Greece would discover oil (but only enough to pay their debts).
- Mediterranean resorts would be pegged to beer prices.
- Health and safety would be left to Darwinian selection.
- Pan-European mobile phone calls would be at "local" prices.
- OCD suffers would be moved to Naples.
- Fruit would be misshapen.
- Human rights wouldn't contradict common sense.
- Coffee prices would be capped at E1.50 a cup but at 50cents in Paris, Switzerland and Venice.
- Eurovision song contest votes would be weighted by debt/gdp.
- Lying about your finances would be a capital offense.
- Day-Glo liqueurs would taste as good at home as they did at 1am on holiday.
- Pedestrians and cyclists would be as punishable as car drivers for accidents.
- Pension schemes, casinos and "Dignitas" would be run as one.
- Germany would be made to play Santa at Xmas.

Wednesday, May 30, 2012


 Many years ago when TMM were junior probationary assistant trainee dealers they came across this term scrawled over deal tickets that were being sent back to the back office after a query. When consulting with medical friends it appeared that it was also commonly used on path lab requests returned asking why the test was necessary. Now TMM are screaming it at their screens every time they see a headline along the lines of "XYZ European central bank/government/politician hasn't yet decided on anything".

So please -  Calling all Eurostriches, rabbits in headlights, procrastinating bureaucrats hopelessly out of their depths, policy wonks who can't bend the current rules enough to fit, political leaders having to cope with something beyond local opinion polls, Germans hung up on outdated fears of hyperinflation, Frenchmen hung up on not being peripheral and peripherals who just don't realise the game is up ....    JUST F'ING DO IT!

If it involves kicking Germany out with Greece; if it involves pawning the Sistine Chapel, Alhambra, and the Elgin Marbles (again); if it involves running the printing presses until they melt; if it means nationalising banks under a  general Europe umbrella raather than a domestic one; even if it involves taking us back to the stone age  - PLEASE JUST GET ON WITH IT! Some of us have lives to lead and watching the sandcastle of the Euro dissolve as the tide of reality comes in, is as predictable, sad and frustrating as watching the real thing at the end of a balmy day on the beach. Either kick it down, walk away or get the JCBs in to protect it with a 30ft coffer dam as some of us need to move on.    

But still it drags on. Yet again today's headlines continue to be a passage of indecision, full of "nots" and "haven'ts" against "wills" and "doings" whilst the market is fast evolving into a "no news is bad news" mode and until we can get this elephant out of the room we can't focus on what else is going on in the real world. For now it's a mad world. And we know it's a mad world when:

- Denmark issue at negative yield.

- Taking on the SNB is a near free option.  


- UK politics freeze up in apoplexy over a U-turn on a tax on hot pies.

- Robert Mugabe is appointed UN "Leader of Tourism"

Team Macro Man have given up and are wandering up the beach to the Pub.

Tuesday, May 29, 2012


TMM have been suffering deja vu. Groundhog year perhaps.

The check list -

European spreads - check
Bank bailouts needed - check
Equity markets on the slide - check
Complete and utter silence from the very people that should be seen to be taking control of the situation - CHECK CHECK CHECK!!!!

The Eurostriches are back. We have just revisited our first post on the Eurostrich back in summer 2010 to remind ourselves of their morphology and were struck by the familiarity of conditions to the point of depression. Unfortunately the one noticeable difference was the amounts mentioned that would shock the market. Today we need to have at least one more zero added. E30 billion? Pah ! That's nothing!

Back in 2010 the market was looking East for the ultimate bailout, but today Voldermort and his Death-eaters appear to be too distracted patting out the flames on the hems of their own robes to worry about taking over the world. But TMM are worried that China is starting to suffer from the same disease as Europe. That of the Eurostrich.

The last policy response we saw from the bridge of the Chinese ship was to ram the engines into reverse to counter a boiling property market. Now whilst TMM have no love of Chinese property developers, cement magnates or officials who use informal financial channels in Macau to take cash offshore, there is a difference between a smack around the chops, solving the root of the problem (political accountability, abominable oversight of SOEs and a need for "real deal" control style privatization) and putting the whole economy into cardiac arrest with a credit/fiscal baseball bat to the head.

But since this last response, the infighting between the Captain and his officers on the bridge of the Chinese economy appears to have left no one in charge of the controls. Only the PBOC appears to be tinkering around the edges and TMM think they should stop behaving like a former pimply 15 year old turned 30 year old overpaid banker/fundmanager, jumping up and down on the couch at Spark in Beijing celebrating its newfound cultural relevance and realize that it is doing as much to bully the economy now as the property developer bovver boys do when doing "land consolidation".

This morning there was rumoured hope of a new stimulation package but this was swiftly countered by *CHINA HAS NO INTENTION TO INTRO LARGE SCALE STIMULUS: XINHUA. TMM would like to believe that this is a comment on the lines of the Bernanke Put, to be taken as meaning that they have no intentions as there is no need, rather than there would be no intentions even if there is a need. Or rather, that the easing this time around is unlikely to be the "just throw a couple of trillion of loans at it", and more about targetted easing, particularly on the fiscal side.

Yet TMM do have a terrible fear that the diseases of political paralysis that have been seen in the US during its debt ceiling debates and in Europe with the lack of strong hand response, is now breaking out in China. If TMM don't see any signs of faster implementation of Chinese infrastructure projects then we are going to be dreaming up a new ostrich term for the Sinocrats.

Sinostriches perhaps.

Monday, May 28, 2012

This Is How You Get Got

You're in the Bushveld digging up rocks
Got, this is how you get got
LSE listed and offshore borrowings too
Got, this is how you get got
Trying to hustle in Africa without breaching FCPA
Got, this is how you get got
Some guy called Paulson said "I like your stock a lot"
Got, this is how you get got

TMM can't help but think of the lyrics of Mos Def's "Got" warning of the dangers of flaunting wealth when thinking about precious metal miners. GDX, the largest ETF covering gold miners has flown high and far since the end of 2008 and it supercharged much of the more inflationista funds' returns. Palladium is the standout but all of them ripped and ripped hard through mid 2011. If you were buying gold and particularly gold equities till you were almost blacking out you could do no wrong.

Recently however, this has changed as can be seen below. The first chart is gold versus GDX.

The second is a bunch of platinum miners and platinum and palladium. As you can see, for both the equities are not just doing really badly, they are underperforming physical in a big way.

Not that physical is looking healthy in gold - TMM's brokers indicate that given the stuttering out and decline in ETF ounces for gold seen below in white is a big part of the drop in physical (orange). Were it not for central bank dip buying things would likely be much worse.

So, aside from TMM's view that you've heard before - you know - that this recovery in the US is sustainable enough to not justify merciless slotting of USD as an investment strategy anymore - TMM thought it would be good to give you a couple of choice quotes from Eastern Platinum, a South African Platinum miner that they released in May last year.

On Friday 6th May, mine vehicles were driven by employees through the security gate to the Zandfontein Mine causing damage to mine property.  Employees then embarked on unprotected industrial action. Mine services at both Zandfontein and Maroelabult underground mines were also damaged, and for safety reasons, the management at CRM instructed the mines to be vacated. Approximately 180 workers then proceeded to unlawfully occupy the mines. Mine management advised employees to cease this illegal action, and simultaneously, a court interdict against NUM and its members was granted that instructed NUM and the employees involved to cease the action and vacate the mine. The workers involved made several demands to management, as well as threats of damage to mine property and underground infrastructure if management did not comply with these demands. To safely resolve this situation, to prevent it from escalating, and to safeguard the overall integrity of mine installations, management had numerous meetings with NUM and instructed them to ensure that their members vacated the mine and ceased their unprotected strike action. An offer was made by mine management to resolve the situation but this was rejected by NUM and/or the employees involved who refused to vacate the mine and made yet further demands of management that were rejected. As these workers refused to vacate the mine, the offer made by management was then withdrawn.
Following the failure to resolve this illegal action by some of their members, NUM invited the Congress of South African Trade Union (“Cosatu”) to assist in negotiations with the instigators of the illegal industrial action. Certain statements were made by the Cosatu and NUM representatives to their members in order to encourage them to vacate the mine. There was no agreement in place between CRM and NUM/Cosatu at this time. The workers involved in the illegal action subsequently vacated the mine.
Stuff happens, but stuff happens more in emerging market countries that have bad institutions and whose labor unions are the political support base of the ruling party as the NUM is with the ANC. TMM would like to say that anyone who thought doing business in South Africa was going to be easy or allow one to earn the excess return of precious metals over the contents of South African CPI or any other wages proxy failed in a big way to understand this country. If you want to own a mine you don't just need high metals prices, you need them to rise faster than your costs. TMM think that mining in South Africa and having your profits increase very quickly is a bit like Mos Def's description of flashing all of your rocks in Brooklyn. Dangerous, and not a long run equilibrium.

TMM are still negative on South Africa where most of the gold and PGM output comes from, miners in bad jurisdictions and when we want to short USD we find something cheap, not something shiny. All great parties have to end and TMM thinks it time to call this one whatever the gold bugs say.

A Spanish Farce

[Outside a Spanish restaurant]

Spanish Government [patting pockets] - "Hang on... Has anyone seen my credit rating? I can't seem to find it"

Santander - "Uh oh, where did you last have it?".

Spanish Gov. - "I'm sure I had it a moment ago. I just used it to issue. You remember? Really expensive place. Cost a fortune!"

Santander - "Ah yes, thanks for picking up that one. I owe you. Hmmm.. You sure you didn't leave it on the table"

Spanish Gov - "No I was really careful. You can't trust anyone these days. My friend Portugal left his rating in open view, next thing broken glass and rating gone!"

[Bankia blushes]

Santander - "Bankia , Have YOU seen it anywhere?"

Bankia [sheepishly] "No??".

Santander - "Sure?".

Bankia - "Yup!".

Santander - "What's that bulge in your pocket?".

Bankia - "Errr,.. Nothing?".

Santander - "You aren't thinking of nicking the Spanish Gov's credit rating and using it to issue against, whilst the market isn't looking are you ?

Bankia - "Nope!"

Santander - "Come here! Show me what's in your pocket! Hmmm what's this then?"

Bankia - "Nonononono! you don't understand! I'm just BORROWING it! Just until I can repo back through the ECB some cheap cash! No harm done, no one will notice! Look I owe some bad people about E19bio at least. Pleeease don't tell! I'm going to give it back I promise!".

Santander - "Look if you give it back now, we won't tell anyone and it doesn't look as though the Gov has noticed what you are up to. Just put it back on the table before anyone sees".


Santander - "Hang on, HOW much did you say you can get with that rating?".

Bankia - "Well it should do me for at least 19bio, but I reckon it's good for a lot more before it wears out".

Santander - "Hmm. Look, if I don't tell the Gov and if we do promise to put it back, which we will right? Then perhaps if you do me for 20bil as well then I won't tell if you won't. No harm done and all that. Times aren't exactly that easy for me either".

Bankia - "Yes exactly! No harm done see? We stay within the ECB rules, the blind accountants don't see what's happening (as usual) and we just give the Gov his rating back once we've err, "borrowed" it for a bit. They won't even notice!"

Santander - "Better not let the markets know though"


Bankia -- "Shit, it's the markets! Arrgh they are on to us, look at the yields! And they've got the Bubahounds with them. Those bastards will sniff out the faintest whiff of monetary financing!! LEG IT!!!!

[Exit Spanish banks from the stage of global finance]

Inspector Weidmann - "Evening All! Now what's been going on here then? Hmmm. A European Sovereign distraught having lost its credit rating? The smell of piss-take in the air? Only witnesses are accountants, ECB and a crowd of policy makers, but they all swear they saw nothing? Hmmmmm ..All VERY familiar .. Sargeant? We have here another case of "Printing Money". Round up the usual suspects!"

Thursday, May 24, 2012

Inglorious Europeans

The post we planned on today has had to be delayed. But we leave you with a question -  Are the current European negotiations going the same way as the bar scene from Inglorious Basterds?  

You are welcome to add your own film clip vs current event in the comments.

Back tomorrow.    

Wednesday, May 23, 2012

Wasp in a Bottle.

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

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

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

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

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

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

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

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

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

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

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

Saturday, May 19, 2012

Struwwelpeter - Moral Tales for Modern Europe

"Just look at him! there he stands,
With his nasty hair and hands.
See! his nails are never cut;
they are are grim'd as black as soot;
And the sloven , I declare,
Never once comb'd his hair
Any thing to me is sweeter
Than to see Shock-headed Peter "

Team Macro Man, when they were little macro children, were given a book called "Struwwelpeter" which was written in the late 1800s by the German Psychiatrist Heinrich Hoffmann as a set of short stories for children showing the shockingly disastrous consequences of misbehaviour. To some, the book is an anachronistic psychological nightmare to be confined to the Politically Correct incinerator but TMM have always delighted in it, leaving them rounded with fond memories of moral tales with endings that didn't pussy foot around.

This morning found us once again reading the book to the squeamish delight (note not horror) of our own offspring and as we did so it became abundantly clear that the book should have been made essential reading for all Eurocrats and Greek politicians. The stark Germanic cultural attitude towards transgression from the rules shines through and is as valid today as it was when the book was written.

Rather than us rewriting each story in its modern context we would suggest you fire up THIS copy in another window and read along as you consider the following -

Harriet and the Matches - Obviously the Greeks playing with borrowing and spending, as they have seen their elders and betters do, but ending with Greece as a pile of ashes.

Augustus who wouldn't have any soup - Greece turning down the bailouts handed to them by Europe and they end up slowly starving to death.

Fidgety Philip - Phillip is so obviously Greek Politics pulling down the dining table of Europe as the Core tell him to behave.

Robert - Investors buying periphery sovereign debt thinking they are protected by CDS and getting carried away never to be seen again?

Johnny Head in the Air - The Eurostriches of European policy reaction with 2011 being the first fall and 2012 the big fall into the canal (hopefully to be fished out by the IMF) all because they couldn't see and react to what was obviously in front of them.

Cruel Fredrick - Frederick is Germany, forcing austerity on periphery countries only to be bitten by them and confined to bed as the periphery then eat his dinner.

The Man that went out Shooting . - This story involves a hunter who, whilst dozing, finds the hare he was after has stolen his gun and his spectacles. The hare then wrecks havoc upon the Hunter and his home, eventually killing him. Hunter - Germany, hare - periphery, specs and gun - policy?

Finally "Struwwelpeter" himself - Europe.

There are other stories in his book that we will leave you to interpret yourself (the comments column is open for alternatives) but, Heinrich Hoffmann, we thank you. You were either the Nostradamus of European politics or have beautifully illustrated how the current European turmoil boils down to basic childish behaviours that the rest of us that were taught from a very early age are just plain wrong.

Thursday, May 17, 2012

You know it's May when..

You know it's May when-

1) Greece is doing its best to detract holiday makers and you wonder if you should forgo the deposit on your Greek Holiday.
2) David Cameron is crowing about how to run Europe.
3) Your inbox is full of crowing statements from FX banks about how well they've done in a Euromoney Survey.
4) You live in London and are diagnosed with rickets through lack of sunlight.
5) There is a deafening silence from the Eurostriches. It normally takes until August for them to schedule a meeting for late September.
6) FX spot traders rummage in the drawer for last year's "what basis swaps are" notes.
7) Analysts just Tippex out and change the year on their research notes, confident that no one ever read them the first time round.
8) "Sell in May" statistical proofs hit your desk.
9) Your grandmother sends you old cuttings on how to grow your own veg and build an air-raid shelter.
10) EGDF replaces DGDF (see glossary)
11) No one cares about economic data.
12) The BBC question whether Van Rompuy deserves his last year's bonus.
13) Your P+L looks like the deck of a Japanese whaling ship.
14) Price Is News with "hasn't been here since [insert last time]" headlines dominating.
15) Despite the end of the world,  someone manages to IPO a grillion $s worth of non-controlling shares in a company that everyone uses for free.
16) High yield pipeline dries up, liquidity dries up, the fund's credit trader starts punting index / working on his putt / is not in the office.
17) Zerohedge and Hotcopper light up with "why is GDX going down" oriented posts with the comments explaining some conspiracy.
18) Football competitions start to be cited as pivotal market driving events.
19) France and Germany pretend to be best mates.
20) Team Macro Man start leafing through the "situations vacant" column of the local parish magazine.

Wednesday, May 16, 2012

Poll Results and Ramblings.

Thank you for the many votes from various quarters and first we apologise for a lack of graphs and charts. We have some of the results but are struggling with uploading at the moment but will try to update later tonight ( if you haven't already done your own). So here are the words, if no pictures.

Though of course it is still a  low sample size to draw many conclusions from, by eyeballing our charts the underlying trend was that most of you think the market is perceiving the date of an exit to be one notch earlier than you are. Trends by segment had the "buy side" putting their own views and market expectations at much about the same, which would make sense as they effectively ARE the market. The "e's and d's" are most skewed to things happening much later than where they think the market is pricing. To be honest we expected the "non-financials" to be more "sooner than market" rather than the other way around. Oh, and perhaps the most important voter, the one  proclaiming to be a Greek Politician, says 2013. But then how much do we trust a Greek Politician.

We also half expected prices to start moving in to "earlier" as time wore on in the survey as the noise levels in the real world grew deafening. But not really so. You are a principled lot who stick to your views! We really will have to try and dig out some good survey widgets that not only do simple polls or surveys but can also let you all play with the results. If so we'd start running regular surveys.

Right .. onwards and downwards. TMM are coping with a severe "Edward the Seconding" (see Glossary) at the hands of  a markets that are.. well.. as a friend descibed them - "The financial markets are like a strapless bra. Half the people are wondering what's holding it up whereas the other half are waiting for it to drop so that they can grab the opportunity with both hands".

TMM have been thinking and wondering. With the market effectively pessimistic of any workable solution being found TMM think its time to think "outside the blx". and come up with some may be not so mad ideas of their own:-

"Rotten borough" short term fix - Offer each voting Greek say 5,000 Euros to vote in "the right way"?  How many voters are there? A guess of 8 mil? So E40 billion cost? Worried about the morals? Well they can always say no! Surely a bargain compared to the trillions that would be wiped off global markets and debt foreclosures on a complete mess up? Yeah yeah .. we know, it doesn't fix the long term problems etc.

Longer Term - In the UK the BBC was moved up to Manchester from the expensive costs of real estate and living in London, to the economic benefit of their new home. This was after the government had already moved state run administration for similar reasons to the likes of Cumbernauld and the economically suffering North East.  Now TMM propose that the EU do the same and move all EU parliamentary, administrative, legal  and regulatory functions from their homes in Brussels, Strasbourg, Frankfurt and wherever else they are squirreled away in "core countries" to Greece. On top of the benefits to Greece of the huge cash injection of all that EC admin budget,  placing the ECB and EU Parliament in Athens and the EIB and European Court in Thessaloniki might just focus a few minds. We could even rename the Acropolis the Troikopolis. They can also keep the move of Parliament between two centres, how about Athens to Rhodes to give the Greek Ferry services a boost? On top of it all, just as Gordon Brown knew, creating more jobs paid for by the state overlord makes that overlord a lot more likely to be supported in the polls. We see Greece's benefits to be huge and the cost savings on current process would also be significant.    

But joking aside, it is still fascinating that the true cause of the current failure of Europe is the half-cock nature of its unity. Much as some are more equal than others, some areas are more "unified" than others. Unified monetary system, unified trade, open borders, BUT and the big BUT -  There is still no real unity and freedom through mobility of workforces and until Greeks exodus to Germany to freely take German jobs for less pay the rot will continue. Perhaps we need cultural union before monetary union (oddly perhaps via the English language).    

We are still convinced that printing money is the solution that needs to be arrived at as fast as possible. What's the problem with that? The currency moves lower - well that's helpful.  You can use the newly printed money to fill in the bank debt holes and sovereign funding issues.  Inflation? On imported goods via fx moves yes,  but the export and global competitiveness function is of greater importance. So what about that imported inflation feeding through to wages? Looking at the UK and Switzerland that is not a problem. In fact the UK's management of the crisis so far is, despite non-financial sector sniping, is remarkably robust and though we have been huge critics of Mervyn King in the past, maybe its time we put him in charge of the ECB.

The problem is that policy response is, by its very name, rarely policy pre-empt and is always reactionary with a lag and as we have seen in Europe so often - A lag that just makes things worse.

Tuesday, May 15, 2012

Greek Exit. What do YOU think?

In TMM's eyes today is crucial as to whether the European markets nose dive in flames or skim the treetops and head back into clear air (for at least another week). The general feeling around us is that the best that a possible outcome could be is a  "Capt C Sullenberger" miraculous yet painless ditch. Few seem to think that clear blue skies are possible again. With little new news apart form the European data today it still all seems to rest on opinions of Greece's existence in the EZ. With opinion rife we thought it would be interesting to see if we could pin down some structure to what our readership think towards when/if Greece will exit and how they perceive the expectations of the rest of the market. More interestingly, we hope to see if we can pick up some biases against backgrounds.

1) When do YOU expect it to be announced that Greece is to leave the Euro (either by Greece or the EU).

a) In May
b) June - July
c) Aug - Dec
d) 2013
e) So far forward it's irrelevant to today's markets.

2) When do you think THE MARKET expect it will be announced that Greece is to leave the Euro (either by Greece or the EU).

a) In May
b) June - July
c) Aug - Dec
d) 2013
e) So far forward it's irrelevant to today's markets.

3) Are you

a) "Buy Side" - invest other peoples money  
b) "Sell side" - including bank traders + sales
c) Analyst/advisor without own positions.
d) A professional private investor.
e) Have a non-financial day job.  
f) In the media.
g) A European policy maker
h) A Greek politician

Hopefully the results will be interesting to all, the more respondents the better  so please feel free to circulate.

PS. If anyone can mail us the html code for adding cunning vote buttons that will show votes 1 and 2 by answer 3 then it would be very gratefully received!  

Monday, May 14, 2012

The 19 stages of a Eurogeddon Monday.

 OK, Greece. Are they really really clever or just so completely and utterly stupid they shouldn't be trusted with a pair of blunt scissors, even the rounded end ones? We still hang on to the hope that there isn't a coalition government and the population are forced back to the ballot box with a clear instruction that what they are voting for is euro membership or not.

As for today we feel déjà vu and would suggest that the market is really looking for some sort of policy response or else they will just keep drilling prices. The Eurostriches are once again silent on coordinated policy, but this time rather than it due to their heads being buried in the sand, they are too busy with their own internal fights

However,despite the new levels of euro panic TMM think they have seen this sort of day before and can sum it up as  "The 19 stages of a Eurogeddon Monday". All times are London based.  

1) Expect resolution on a European issue over the weekend.

2) On Sunday it becomes apparent there is no resolution.

3) Twitterati and blogosphere go into overdrive

4) Asia opens and sells hard.

5) Media quote twitterati and the Asian price falls.

6)  08.00 Europe, now whipped up, opens and sells hard.

7)  08.30 Media and commentaries quote the resultant price moves including lots of " haven't seen this price since the last time"

8)  09.00  More Selling.

9)  09.30 Having sold, the market takes a pause to notice that there hasn't actually been any new news.

10) 10.00 All talk is to the downside with more gloom recycling but no further price response.

11) 11.15 US wakes up to a deluge of commentary saying SELL and to seeing prices lower.

12) 12.00 US sells  and prices fall again

13) 12.30 Models join in and sell.

14) 13.00  Europe relieved to see US commenters also saying the markets are a sell.

15) 14.30 US Equity markets open and fall hard to the "toldjaso" relief of all those who have sold in the last 24hrs.  

16) 15.00 US notice that there is actually no new news and some shorts from Sunday Asia open are covered.

17) 15.15 Momentum picks up to the upside accompanied by "just a short term bounce, sell the rally" comments.

18) 16.00 Small positive comment from a Eurocrat/Greek and markets recover further into European close.

19) Tuesday 10am - "Well it IS going to happen one day" - short term positions closed or moved to long term book as it morphs into a "Turnaround Tuesday".

Team Macro Man are really hoping the Eurocrats or Greece can do a bit of a "Manchester City" with a final seconds redemption, but it does feel today as though a lot of the crowd have already left the stadium.

Saturday, May 12, 2012

How the Banks See Each Other

This week has been dominated by news about banks. We have had JPM's trading slip up, Credit Agricole's collapse in profits because of Greece, headlining have been the Spanish banks and overseeing all of this have been the local central banks. Team Macro Man think it useful to examine the interrelationships between all of the antagonists, so we give you our quick guide as to "How the Banks See Each Other"

Friday, May 11, 2012

Friday Questions

"The world was darkling. The very air seemed brown, and all things about were black and grey and shadowless; there was a great stillness. No shape of cloud could be seen unless it were far away westward, where the furthest groping fingers of the great gloom still crawled onwards and a little light leaked through them. Overhead there hung a heavy roof, sombre and featureless, and light seemed rather to be failing than growing" J.R.R. Tolkien

Despite the sun finally appearing over London today (actually as we write it's gone again) the financial scene does feel very Tolkienesque especially in Europe where, if they were to reshoot the film, we would suggest the following cast :

The Ring - the Euro
Sauron - Weidmann
Saruman - Scheuble
Mordor - Germany
Mount Doom - Bundesbank
The Nazgul - Bond Vigilantes
Gollum - Greece
Gandalf - Draghi
Frodo - European Economy
Bilbo Baggins - Trichet
Gimli - Merkle
Pippin - Hollande

Elsewhere, we really couldn't decide which picture of an exploding whale to paste in so instead pick your favourite here.

Once again we wheel out our favourite trading aphorism "If you want a hedge, go to a garden centre". $2bio is really not a lot to a bank of their size and though the world's media, Volker advocates and all of JPM's competition are expressing a level of schadenfreude that is verging on Milibandesque, unless there is a systemic threat to the system - which we really don't see despite the disasternista's "but what ifs" - this is localised issue and not worthy of shellacking the whole US market and certainly not global stocks.

There is one upside to the event - the resurgence of the word "Egregious" According to the OED, "Egregious" is defined as "towering above the flock", "Prominent, projecting", and yet it can mean "remarkable" in a good sense or "remarkable" in a bad sense. We look forward to this word rocketing up the management bullshit charts as it basically means "wow that's big" but with no admission of failure.

TMM have to rush off now, but leave you with some questions for the weekend -

Can the catch all "unwinding inflation hedges" be used to describe recent market moves, especially in commodities and gold?

Gold. 1480 or 1680 first? We have learned not to mention this relic and have stayed clear of its debate for the last 18 months having found the subject more touchy than Great Aunt Maud's crack habit. So lets just ask - 1480 or 1680 first?

Are Greek politics modelled on Monty Python's "Life of Brian"? We've already had the "what did the Romans Europeans do for us?" scene and have now moved on to the confusing list of popular people's parties.

What yield would you have to be offered to eagerly buy Spanish 10yr basef on current information? (Expecting more than "any price lower than market bid" thank you)

Is "Sum of the Parts" analysis more relevant now as this isn't a global crisis but a set of local issues that can be arb'ed on the global stage. Eg.TEF?

Are we mad to think the best fx trade here is to buy aud/jpy?

Will Spanish banks morph into a single EIB/EFSF backed people's popular post office?

Should TMM walk away from the 20% deposit they paid on their Greek summer holiday? Yes, Greece again. The family like it.

Wednesday, May 09, 2012

Perfect Storm: Part 2

It's happening again. A global feel of "risk off" which is actually the sum of separate regional issues rather than a single global world shaker.

Europe now - Greece Back, Spain constant and a socialist whiff in the air. Socialist? Or perhaps just more bipolar. While right wing behaviour is easily tagged as "selfish", socialist behaviour is seldom considered such. However, TMM would wager a friendly fiver that the current wave of European socialism is about sharing someone else's wealth rather than their own. With Germany the "sharing" target of most European socialist's eyes, it is hard to see Germany following suit and moving left rather than right. At least not before the SPD win next year's election...

And who has just reappeared? Yes, that Gollum of Europe, Greece, and just like his Lord of the Rings role, this weak creature is back to twist and manipulate, follow and haunt the once strong and wise of Europe on their quest to save the Euro.

Amongst the Grexit paranoia and panic that has begun to build, TMM offer a few thoughts:

1) From the IMF/EU/ECB/German point of view, the direct cost of refusing to compromise, resulting in Syriza's reneging on the bailout agreement and defaulting is exceptionally high:

a) 70% of Greece's debt is now made up of official loans already disbursed: EUR 140bn.
b) The ECB owns EUR 40bn of Greek bonds.
c) Greek banks currently repo EUR 140bn with the ECB.

A Greek debt moratorium would thus impose exceptionally large losses on international creditors directly. To the above, the indirect costs would also be material as there is not a sufficiently large firewall to prevent the spread of contagion, nor do the Bundeathstar and EU policymakers more broadly truly appreciate the potential for contagion to accelerate beyond their ability to contain it. The magnitude of a such a sufficient policy response is just not even close to getting on the radar yet.

But even ignoring contagion, the direct costs are enough to blow up the ECB and very probably block any further IMF lending to European countries. Balancing against German arrogance/moral hazard concerns, it is not obvious that the Troika would refuse to compromise at all (despite the widely-held view that the Germans have had enough and will refuse), especially given the IMF reportedly were pushing at the last review for the fiscal consolidation to be spread out over an additional year. It is also worth noting that the cost to Europe (and especially Germany) directly would increase materially were the IMF's war chest not available for Spain/Italy.

2) The risk of Syriza ending up as the largest party - and so getting a bonus 50 parliamentary seats - is material. Assuming that they are able to attract additional support from the Left-leaning parties only (TMM don't think it is too much of a stretch to argue that the right-leaning voters are unlikely to vote for a hard Left party), and that New Democracy manage to hold onto their current level of support then on TMM's calculations a 2.2% swing from non-Syriza left leaning parties to Syriza would make them the largest party, with the additional 50 seats. That is not a massive hurdle, especially given that the momentum is now with them.

However, there has also been some dismay in Greek political and media circles at the performance of extremist parties. If Tsipras is going to be able to pick up more votes, he is going to have to seem a bit more mainstream or even more hard-left, given that the Communist party to the left of him are for leaving the EUR (he is against) and have refused to join him, while PASOK to the right of him are pro-EUR but obviously also in favour of the Memorandum. It's not easy to see whether he will pick up enough extra votes or not, but certainly very possible.

One thing that has struck TMM, in response to the German/EU statements on austerity commitment is the view that you do your homework or you leave the Eurozone. It is no coincidence that both Venizelos and Samaras have begun to try and discredit Tsipras' policy of defaulting, reversing austerity and structural reform but remaining in the EUR as a false choice - you cannot have only the good bit (EUR) without the bad bit (austerity). To reject the Memorandum is to leave the Euro.

If PASOK/ND can paint the likely upcoming election as a referendum on the Euro (to which 70%+ of Greek voters wish to keep), then the risk of an extremist government should fall, and a national unity coalition seems more likely. TMM wonder, perhaps, whether Papandreou's gambit last autumn should not have been so heavily crushed by the EU powers, for that was to be marketed as a referendum on the Euro. The Germans reap what they sow...

In light of the points in 1), should PASOK/ND manage to form a unity government, the Troika may provide a token compromise, either by relaxing a little bit or using Hollande's suggestion of a beefed-up EIB to invest in Greek infrastructure or something along those lines. TMM tend to think the latter is more likely.

3) Should Syriza manage to become the largest party, then despite Tsipras' desire to keep the Euro but default on everything, TMM reckon that a Euro exit would likely become inevitable - not out of choice, but as an "accident" arising from the following course of events:
  1. Troika refuse to back down on austerity.
  2. Default on ECB/Troika causes a lot of name calling & anger in Europe and elsewhere.
  3. Bank runs in Greece accelerate further.
  4. The ECB refuses to accept defaulted debt as collateral, cutting off the Greek banking system.
  5. The inability to access the ECB window means that de facto Greece is no longer part of the monetary union, it merely uses the Euro (like Montenegro).
  6. The resulting EUR140bn funding shortfall forces a sudden stop in the Current Account
  7. Imports collapse as payments cannot be made due to bondholder court judgements freezing payments.
  8. Food/fuel shortages, power goes off... riots move to a far more severe intensity. Perhaps the Army seize control, TMM do not know... but it seems reasonable to assume that during the political chaos a Euro exit would seem inevitable.

TMM's personal view is that a compromise of sorts will eventually be made because the costs in this gigantic game of chicken are astronomical on both sides, with some form of unity government formed that has a small bone thrown to them. It is paramount that ND/PASOK portray a new election as a referendum on Euro membership. And we should monitor the press over the coming weeks to check this. If the discourse in the media does not take this form by a week or so before the election, then TMM fear that Syriza will be able to consolidate its position and pick up the extra votes needed to become the largest party.

What to do? In the case of Syriza becoming the largest party, TMM will look buy a ticket to the theatre, buying downside in S&Ps and shorts in EM. TMM do not think trying to trade European assets directly is the right thing to do here given a lot is priced into them, and there are many uncertainties around capital controls and other legal aspects.

Should the discourse move towards Euro membership, then TMM do think it's worth trying to fade some of this Grexit paranoia. In the meantime, given that Equity Long/Short guys do not seem particularly exposed to risk (and large net-longs from this investor base have typically been seen into the larger risk aversion events since 2009)- see the Russell performance yesterday), increasing open interest in Eminis into the sell-off (argues either or both of gross book expansion beta hedging and new shorting) and general excitement on the IBs about range breaks that in the short term it looks a bit overdone to us.

Friday, May 04, 2012

Kerwang Markets

A few years back TMM did their motorbike test with 3 good friends. Not so much because any of us had real aspirations to brave the London roads on a death machine but more along the male testosterone ability/one upmanship lines and having another licence to display next to our diving / parachuting / marksmanship / racing driver / kick-box instructor / ski guide / golf pro / astronaut cards (if only). Doing the accelerated  "know nothing" to "full licence" course required a basic knowledge of bikes and so we didn't really get off to the best of starts when our instructor's first instruction, once we were mounted on our 50cc starter bikes, was to "just let in the clutch and ride 10 feet forward". One of us did what looked like an "emergency accelerate", careering off into a fence. Our relationship with our 22 stone bigot of instructor never really recovered.
There were various fond memories, including when he pulled us over to the side of the road "Right lads ..take a look around ..  As a road user what is the main hazard you would be most wary of"  TMM Reply -  "The four blokes standing in the road in  "trainee motorcyclist" vests looking around aimlessly?"

But the highlight, if you will excuse a very rambly start, was when Mr Unpleasant asked us "Do you know why the Harley is called the potato"?  No?  "Because the noise it makes is "potato potato potato potato"".  To which TMM replied, bearing in mind the motorbike the instructor rode, "Ahh! that will explain why the BMW1200 is called the "Kerwang"".  He just looked confused as his instructees broke down in mirth.

And THAT, dear reader, leads us back to these markets (we hope you have worked out the kerwang reference by now) because TMM are feeling like a bunch of kerwangs, Either that or everyone else is. But invoking the old dinner party adage  "If you cant work out who the wanker is, it's probably you" it must be us. April and now the short start to May have evidenced this. We just need to look at our P+Ls and the carnage inflicted upon them.

So what is making us kerwangs?

Our views on Europe? Because we cant see what everyone else can in Europe? They are in recession Ok, but we are not about to lose the Euro.  But we are being undermined by good old fashioned non-binary economics with the slew of rubbish PMIs. Rubbish but still not a complete disaster. At the aggregate level eurozone composite PMI is still only implying about -0.3% Q/Q for Eurozone GDP which is obviously not great, but it's not enough to drag the rest of the world down. TMM think you'd need to see -0.5 to -0.6% QoQ for it to start having an effect. The key thing is not to be paralysed by the shock value of Spanish or Italian PMIs on a low 40-handle. These are not surveys with a particularly long history they likely have the same X-12 2008/9 crisis echo problem with their seasonality and as they only go back to mid-2005 there are not enough crisis-free points to actually figure out a seasonal adjustment factor that is "clean"  (like the NAPM have done for ISM).  Finally, it is worth pointing out that the "50-level" does not correspond with 0% GDP even if that is what some lazy interpreters would like us to believe.

Our views on commodities? We note the recent dump in materials, largely due to an emerging consensus that QE or not, with supply situations improving in base metals and bulks the best days of the sector have come and gone. TMM think this is about right and while gas heavy diversified companies BHP and XOM may pay nice dividends and have upside, the days of making  notes punting small cap ASX names is largely over. We  are short coal, copper and silver. QE doesn't matter for anything (except gold) when fundamentals are this strong for the sell side. Perhaps iota has already started. - The UK FTSE underperformance today despite peripheral Europe gains is nearly all due to the basic materials sector.

Our views on Equities? Super cycle - bond and commodity markets on the wane and equities to lift off as the next "whowuddathoughtit" parking bay for all that cash. Earnings this season at 8% against expectations of 3%. An underlying support from either QE from someone, or growth that will preclude the need for QE. A new bias to go for stimulus in Europe. Thie isn't 2011 its more like 2009. The real money sector paranoid about downside risks and already hedged. That's it basically.

Perhaps we are just kerwangs for even being in this business. TMM have seriously started to consider how they can get public sector jobs. Cleaning road bollards for a south London council seems infinitely more attractive than dealing with half of the kerwangs in this industry.

We wish you a happy long weekend if you are lucky enough to be having one.

Wednesday, May 02, 2012

Behavioural Model.

What a difference a day makes. "Sell Aud? Australia? Where's that?  We are back to selling Europe again".

TMM's Bloomberg IB chat bias-o-meter would have us believe that we are about to have a Euro panic similar to that of 10 days ago. If that is any indication of the size and commitment of short term positions then really the price moves so far aren't that impressive. We will not get sucked in (though we may get spat out of existing positions).

But it doesn't matter if we are right or wrong in our method, prices change because people decide levels at which they are willing to trade. So no matter how much we believe in our methodology, no matter how much it can mathemematically be proved correct, no matter how much our theory, or even what we thought was everyone else's theory, tells us we are right; if everyone else is reacting for different reasons then our ultimate reward for rightness (profit on price movements) will remain elusive. Which is a long winded way of saying the market will remain irrational longer than we remain solvent.  This is of course why it is imperative to understand what drives other people to make decisions as much as understanding our own.

We often see the markets as a massive poker table around which sit thousands of players, all with their own different reasons to play and ways of playing. Understand all of them enough to pre-empt their actions and you can profit greatly. But that's nigh on impossible so we tend to group the types. We have in the back of our minds ideas for a piece on all the different types we have encountered over the years but that is for another day.

Instead today we have knocked up a behavioural model of how the markets work, very much from our own perspective. It's remarkable in its familiarity. No prizes for guessing which one we are.

Tuesday, May 01, 2012

T'was a Dark and Stormy Night

We've been playing Battleships with the RBA - RBA's go. -50bp. Booosh. Hit...... Battleship AND Destroyer. Otherwise known as our short Aus bills and long Aud/Cad positions. Holed, but we still have steerage and the main engine is still running, just. Man the pumps. What a bunch of W&^ers.

 Aud/Usd is 100pts lower, Aud/Cad is back to its lows of a few days ago, eur/aud is breaking higher (but then we do have euro relief going on too). Rates market moved sharply and is pricing more than 25bp of further cuts combined for the next two meetings.

That RBA rate cut has really focused minds over what's going on out there. There has been a massive positional and mood bias, mostly from US leverage that a) China is heading for a hard landing and that b) Australia's two speed economy and constant deficits leave it highly geared and more and more dependant upon the China dream paying for local excesses. Because of that AUS has been a favourite short since the beginning of Feb, when the China fears really started, as Aus was seen as the vulnerable high beta. So today's RBA cut could be seen as the final justification that those shorts have needed. Toldja so! Particularly from that McCrann man. Uuuurgh.

But the China part of the Aus trade may not be paying off as fast as many had hoped. PMI this morning at a smidge under expected is no calamity and, to us, points to flat to up, rather than down the tubes (before anyone starts, we are NOT of the opinion that the official PMIs are rigged).

Is Aus going to tank from here? TMM still think not and rather than abandoning their AUD/CAD ship they prefer to man the pumps and bail like hell. Unfortunately their Aus bills position has already sunk below the waves.

It's meant to be a holiday today, but TMM haven't had much fun either at work or outside. As the media headlines proclaim "This is the wettest drought on record in the UK". With hosepipe bans still in effect, TMM are waiting to hear back from their local water authority as to whether they are also banned from using them to pump the floods out of their houses.

Elsewhere TMM have permanently  switched off the BBC Radio 4 Today program in the mornings and are bearing up to "easy listening" instead.  We suppose that with the Leveson enquiry nailing the Murdoch empire and the BBC's natural bias melded with some of the most embarrassingly twisted economic "analysis", we shouldn't be surprised at the minutiae of political issues being dragged out as headline stories. TMM are waiting for the headline news that Tories are guilty of human genocide because it hasn't been proven that they are not and some email is found saying " I'll kill whoever said that"  in some ministerial hard drive. BBC - GET A LIFE. Or rather get some journalists who have some understanding of the real world.

We do feel that mankind is being poorly served by politicians who have studied nothing other than politics, being reported upon by journalists who have studied nothing other than journalism. Team Macro Man have suggested before that politicians should  only be eligible for election having spent at least 10 years in a "proper job" but we would now like to extend that stipulation to encompass journalists.