Friday, September 28, 2012

A Not Too Cunning Plan (or Three)

It's all going a bit Europe again, even to the extent that China has borrowed a leaf from the European lesson book and pushed back schedules for important announcements. Namely a new leadership. The announcement is interestingly now after that of the US. Could they really have two sets ready and prepared depending on US outcome? Nah of course not, though "Here's one I prepared earlier" would be amusing they appear to be struggling to produce just one fully baked item.

But back to Europe - Hollande's new income tax schedule has done its bit for London property prices. They are going to have to extend South Kensington all the way to Croydon to cope with the influx from France.

Spanish RPI - How much? We wondered if the high RPI was due to Greek Economics (if your sales halve you need to double prices to stand still), but it's probably just their VAT hike feeding through.

Spanish rumours appear to have done a whole economic cycle in one afternoon. Bank report will be rubbish SELL SELL ! But that means they will go for a bail out BUY BUY! But then they'll have more austerity SELL SELL! But austerity will reduce government borrowing BUY BUY ! But also reduce tax revenue SELL SELL! Oh look its 3pm  SIESTA SIESTA. And finally . "Quick Juan, we cannot make el numero look like we have cooked ze booooks to match the ahhem "expected" 60bio, make it look "real"",  "Hokay, Hokay.. How is 59.3bio?", "Ha! Brilliant! Envoke spurious accuracy and add some decimals! They will never guess it is not real!" Right oh, at this point TMM will rehash an old joke and ask "Is it true that Jim Kerr, leader of the Simple Minds, was originally christened "Juan" and works for the Oliver Wyman Group where he got the idea for the name of his band?"

Month end - Can you hear us above the noise? You can? Well turn it up to Quarter End too then and then try picking out the signal from the noise.

We tend to believe that there really is a general ongoing sea change since QE, but our concerns expressed last week were first, there was too much confidence priced in for Spain and the process for it to reach a more stable outcome. Yes, tail risk has been sliced off by Dr. Aghi , but there is still plenty of rattle room for stress in the rest of the probability bell. Second, everyone had too swiftly piled into the inflation trade. But in the last week we have had brick chucking in Madrid and Athens to refocus the mind and we have had a raft of US data culminating in todays sub 50 Chicago PMI reminding all that inflation may be a little further down the line than spiv-monkeys can hold on to their positions for. We happily got out of Euro and equity index stuff last week and have been using today to take profit on some speculative short term shorts as well. However, we are in a few minds as to how to play this dip from here.

So when is a dip just a dip and when is it a limb shearing Japanese sushi filleting knife in a Doppler shifting descent? Well its normally the latter just after we buy it, that's when.

Plan a) The "It's just a natural shallow dip" - Brick chucking really hasn't done that much to dent price action in Europe and under the old rules, we would all be a dither about Spain and yelling that we are all doomed. Is this a sign that people haven't woken up to the doom and so we have further to fall? Or that it is well known and price has that imbedded and so it is actually all rather supportive? Plan a) relies on the latter. We think that short term has been flushed out on this pull back and have also detected a turn in mood from the medium term players. The equity selling of today has been pretty well flagged as part of month trend reversals for month end portfolio rebalancings, however having price falls into the weekend leaves the press corps, lead by Ambrose Evans-Pritchard, free rein to go into knitting mode stitching all bad news stories to the falls as past, present and future justifications. This should leave the market nicely spooked for Monday and we have a classic Monday sell-off followed by a "buy back Tuesday". As it happens Tuesday is lining up nicely for a load of soothsayer buy signals in risk in general. So Plan (a) is to buy risk things on Tuesday.

Plan b) "It's a bigger dip". We are being infected by the same nerves that are making sentiment swing negative elsewhere re our original premise last week that too much is priced in. There are some key worries that the core and periphery think they have agreed to different things when it comes to soveriegn / bank feedback loop and though this subject has been discussed over the past few weeks it doesn't feel like the market is pricing as if they know that Spain and Ireland are still on the hook for their own banks. We also see some other risk indicators rolling over. Hmmm

Plan c) "Lets get sectoral" - High Yield vs Equities, High yield has a high yield for a reason and don't you forget it. We prefer Equities over High Yield. Europe vs the rest of risk. If we are looking for a general swing higher in risk as post QE trends resume (having washed out the short term and confused the medium term) then perhaps we should hedge out our europen concerns against long risk. Short Eur/Aud again? Or more generally hedge out explosion risk against long term trend grinds. VIX is still ticking along in "not much concern" land and is cheap (though we hate the term) as a cover trade. We have been looking at playing the Vix curve too. Maybe more on that soon.

Which one to follow? We will start with plan (a) but hold an option to go plan b) if there is horrendous  news on Monday. Plan (c) will be implemented if things are calm enough for us to do some finessing.

Team Macro Man wish you a very welcome 2 day break.

Tuesday, September 25, 2012

Current Currents and Meanderings.

It's sort of going according to plan. "Sort of" in as much as plans never really go as planned but are a weaving together of many paths that on average hopefully take one to where one wants to go. As we know with markets, a win is a win even if the theory was wrong. Unless of course, you are the boss, or an insurance company, or a fund regulator in which case the win is invalidated as if didn't follow the path exactly described in the prospectus, policy or proposal and the resulting payout goes into the pockets of Mr Boss, Mr Insurance company or Mr lawyer or Mr FSA/SFA fine. But in general a win is a win and we take the pullback in euro things and equities as a "Thang Yow!"

Talking of Yow, TMM's mind jumps to that marvellous "Fast Show" portrayal of a regional Brit displaying those Nuevo-riche tendencies that we all detest and can't help but think of Germany's attitude towards Spain and their ilk "I can't help noticing that I am considerably richer than yow"

With Switzerland being the hotel owner.

 So what else is bubbling? With policy-maker bazookas smoking empty, we are back to data watching to see if the rockets have hit their targets. Or, perhaps more apt in war film analogy land would be that the economy is like one of those moments where the stricken fighter pilot (policy-maker) is pulling back on the stick for dear life muttering through gritted teeth "Pull up! Pull up, damn you!" while siren screams gain in pitch as the plane hurtles towards the ground. The audience left on the edge of their seats awaiting either a fiery death or the plane to recover enough to level out and skim the treetops as relief music rejoins the rugged smiling visage of our heroic pilot (if anyone can find such a YouTube clip we'll embed it - we failed).

Right now the markets appear to be doing a "Bosphorus" which has currents at different depths moving in opposite directions. Which leads back to that reference we made in our last post. Markets are the sum of people expressing short, medium and long term views all at the same time. And the currents we refer to in markets are instead of being haloclines (layers separated by saline density) are temporoclines - layers separated by time view. We should of course add finer and finer layers ending with a top layer of vibrating spume representing the high frequency trading models.

TMM currently (oh dear) see 3 currents. Our core subsea current is the move we saw betrayed post QE announcement which is being expressed by those comfortable enough or with pockets deep enough to cope with any chasm between them and their promised land they have identified in the distance. The middle counter-current is represented by those that see problems in reaching the promised land and who are strapping on the crampons for some extreme mountaineering through countries like Spain, China and Japan and up US cliffs. The top short term surface current has today effectively gone slack with short term starting to say "errr now what" and that lot together means today prices are really not going anywhere.

So once again its a dull day. But that hasn't stopped the cut and pasting of random headlines around the chat systems in sorts of death twitch seizures. The heads have been chopped off, thought is not being applied but the foul is still flapping its wings and running around the yard trying to squawk. Headlines such as *The U.S. Embassy In India Announces A New Visa Processing System" are being recycled with the sort of implied importance as "Worlds largest oil reserve found in Spain". But to TMM most of the headlines being thrown at them today may as well have come from the backs of German one piece ski suits of the 90s. Remember them? Random meaningless words sewn on gaudy colours - "Ski! Artichoke! Yeah ! Banana!" but now "China! Greek! Less! More!". Meaningless.

Tuesday, September 18, 2012

Comforting Antequities

We are sure that the poem IF has been done to death by us before, but are in half a mind to rewrite it with "being long dollars" as the theme, as it would appear that if you can stay long dollars whilst all about are losing theirs, then indeed you will be a man, my son.

 We are now at Day 4 AQE3 (Anno QE3) and the new era, indeed epoch, has seen the bears thrown out of the temple and the rush to get back into everything that normal QE rules dictate should go up (or down). Being short of USDs is one of them, but TMM have seen these QE Econ 1.0.1 knee-jerk trades before and never seen them play out to maturity, well certainly not in a straight line. Indeed the DXY is much where it was pre the Lehman event and stocks have been down just as much as up after the previous bouts of QE. Bonds historically have done better on QE, but the reaction this time is to pile into stocks, sell the usd and leave bonds lower to flat displaying a hope (or fear) that this QE IS different and will completely inflate the economy launching a spike in inflation and the collapse of the dollar.

Is this time different? Well it is "open ended", but then so is the invitation from our Great Aunt to pop in for tea anytime, but it doesn't mean we will. However for Team Macro Man the difference isn't the inflationary impact. Much of the inflation side of expectations is derived from the expectations themselves. Expect inflation and you buy commodities and the resulting price rises reinforce inflation fears. Selling of bonds and the buying of Gold on inflation fears leads to media morons pointing to their resultant price actions as evidence of inflation fears which must mean inflation is coming. But until wage price inflation feeds through into the economy the rest is just expectations. And this must surely be one of the key points. For wage prices to experience inflation the labour market has to improve and as soon as the labour market improves there is no need for QE and it stops, cutting off the source of the inflation fear loop. The next question should be "ah .. well is it possible to react quickly enough to switch off QE between the first signs of an improved labour market and lagging QE impacts accelerate things?" That we don't know but flooding the market with a load of dodgy bonds that the FED has previously bought should be pretty effective.  In summary, TMM think the inflation trade has got way ahead of itself .. again. 

 TMM think the impact of QE3 is of much greater importance to the sentiment balance between bonds and equities. Where as we don't think deflation is near breaking point, we do think that the weight of investment that the sovereign global bond market can bear is. Just how much more 1% or 2% returns an investor wants with decreasing credit profiles and an increasing supply side is to us debateable. Whilst equities, the scourge of the bear and also of the younger investor, could just do something extraordinary. They may just become the next darling of the market. Could they become the next comfort food? 

 Here TMM will digress for a moment.  We have long felt that fashions in styling are driven by economic background and go beyond the height of hem lines. Booms provide a security that allows one to wander from comfort zones. The 60s saw the rise of minimalist furnishings and stark spaces just as the 2000s have. Yet a turn in fortune and suddenly the old comforts of the parental home become reassuring again. The strife of the late 70s and early 80s we saw a return to pine, cluttered rooms, house plants and "Laura Ashley" busy patterns. Art Deco's 1920s boom faded away in the 30s and 40s yet saw a resurgence into the 60's. If this pattern is to be followed, really TMM ought to be going short Swedish furniture companies and instead loading up barns with antique furniture and investing in floral print design co's. But we just wonder whether the forgotten world of equity investments, having been dwarfed since 2001 by property, credit, bonds and commodities is suddenly going to see a resurgence in fashion. We don't just mean in professional fund manager space, we mean on the streets, in the salons, at the dinner parties, in the bars and finally in the taxis. 

 We may have started already. To TMM, the fact that we can have a US equity market rally as much as it has this year (despite the doomsayers) only JUST be joined by a professional consensus swing to "Well you have to own equities" leaves us thinking that we are only just in the lower to middle part of the rising "S" that spells the shape of most bubbles. NO NO NO .. we did NOT say it's a bubble! It's far from being a bubble. Equities are so despised by the Nuevo post-2007 black swan hugging investor that it cannot possibly be called a bubble at least until Hero Zedge are writing articles about down moves being conspiracy and we see BMW driving 25 year olds bragging about their equity portfolios (TMM at this point have just realised that all bubble tops are signalled by BMW 3 series driving 25 yr olds bragging about their portfolios. Remember property?). 

 But as ever markets are a blend of the long, medium and short term views. And though TMM do agree that equities and things corporate are the way to go, they have been long for a while but are a little dismayed at the quality of some of those who have just joined their carriage. To the point that we think we may just get off and wait for the one behind.

Friday, September 14, 2012

The New Colossus

"The New Colossus" is a sonnet by Emma Lazarus, written in 1883 and, in 1903, engraved on a bronze plaque and mounted inside the lower level of the pedestal of the Statue of Liberty. However "TMM/Yellowbeetle Collaborations" would like to give you the sonnet they found on a plaque at a different location in New York-

Not like the brazen giant of Greek fame,
With conquering GGBs astride from Euro land;
Here at our debt-washed, subgrade shores shall stand
A mighty man with a speech, whose flame
Is the liberated easing, and his name
Father of printing. From his QE-hands
Glow world-wide bids; his mild beard commands
The air-head policy that twin mandates frame.
"Keep, Asian lands, your new found wealth!" cries he
With silent lips. "Give me tired bonds, your poor-performing loans,
Your huddled assets yearning to breathe free,
The wretched refuse of your teeming book
Send these, the homeless, rating-lost to me,
I lift my balance sheet, behold the golden floor!

Thursday, September 13, 2012

Bits and Bobs

Hamlet Act III - Basically they will or they won't or they may do a bit or they may not or they.... Oh take your pick and trade on it if you like but all we'll say is if there is no glimmer of QEness then the markets are going to tank and the dollar zoom higher. Much as this may help out our eur/usd turn call, it really would be too messy to consider as helpful to global confidence. Considering how Europe has nearly achieved the impossible in turning around sentiment, it would hardly be polite for Ben to then drag the dog out to the wood shed just after Draghi has spent so much on vet bills.

Europe- No change from yesterday's views, we are still looking for eur/usd to roll lower accompanied by Spain yields ticking up again. Will Spain miff eveyone off now by not running into the straitjacket that France is kindly holding open for them? But we are wondering if the wealth of push back we are getting on that idea from friends and colleagues is indicative of us being more right, OR about to be hit by an FOMC driven steam-roller doing Mach 3. 

Its just like [insert year here] - Currently 2009  is the year of choice for many but to TMM that reflects that general towel chucking extrapolationista mood change of the last 3 days. But as per Fat boy Slim, it's "come a long way baby" already. The main difference between 2009 and now is that the data hasn't yet rebounded. We still prefer the answer "none of the above" to the question " which year does this resemble" 

Any old Iron - Talking earlier of being dragged out to woodsheds, all those calls for 0.9500 aus/usd have gone somewhat muted and even against Euro Aud has been flatlining rather than falling. Iron ore +15% from its base. Ho Hum, pass the bear baton to Fortescue. 

Apple - Well.. in TMMs eyes, Form is writing checks that Function can't cash and the Iphone 5 is going to be leaning heavily on Apple's fashion and religious functions. Will Apple start correlating to Burberry? Has last night's party in Korea finished yet?  The Daily Mash has a point

Back to work. May the fomc be with you.

Tuesday, September 11, 2012

EE Branding Takes the Biscuit

TMM were not too shocked to see Burberry sales forecasts plummet and suggest they get a new PR agency. However we strongly suggest they don't use the lot that the Orange T-Mobile merger group "Everything Everywhere" has just employed to dream up their new "EE" branding logo ("dream up" being the best term). Was this deliberate targetting of the clubbing fraternity or were they just on drugs when they thought this up?

Friday, September 07, 2012

If a Bear Falls in the Forest....

.. Does it make a noise? 

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

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

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

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

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

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

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

Wednesday, September 05, 2012

Waiting for Europatch 1.0.768

Just as new Operating System upgrades are keenly awaited by phone nerds, so we financial nerds are keenly awaiting Global Stimulation upgrades.

US - The iPhone Operating System. Its been around for years does what it says on the tin though is ridiculously expensive. TMM think QE3 is most likely this month unless we see a huge surprise improvement in the unemployment rate which is hugely unlikely.

China - Android - Used by the masses, cheap and ubiquitous, there may be upgrades going on in the background but you really can't tell if they have been done or made any difference. Hello China? Is anybody at home? Or is this just a big game of chicken?

Europe - The Nokia/Microsoft launch. Amazing amount of hype but is it really going to resurrect an outdated platform? We all await Dr Aghi's announcement as it becomes pretty clear that the ECB is going to play the "It IS in our mandate so get back in your box Buba" card. But the politics appear to dictate that at least trying to curry German favour should be seen to be attempted even if it is to ultimately be ignored. leaving TMM thinking that Europe Ex Germany (the new EXG zone) is attempting a negligent parent policy leaving Weidmann like this:-

Whilst the parents pop out for this:-

Today's comments from Dr.Aghi are reinforcing the impression that he IS going to fire the bazooka, well at least the 3yr unlimited sterilised bond purchase type, but still they offer crumbs to the petulant Weidmann. TMM can only assume that the comment from Draghi that *ECB SAID TO CONSIDER SELLING BONDS IF CONDITIONS NOT MET. Is purely political bluster, for the benefit of German ears for though sounding like a threat of tough enforcement of conditions, the implementation of such a threat would be nothing short of nuclear on many levels.

But as far as market confidence goes, since those statements Euro has rallied , Spain yields have fallen sharply and most interesting of all, EUR/CHF HAS MOVED! Ok its not a lot in points terms at time of writing but it's at new month highs. A cheap option for a euro bazooka? We know where the floor is but the sky could be the limit if the SNB catch an ECB mood. Whatever the reason (unless it is SNB themselves forcing it higher) there will be less recycling into the likes of SEK and AUD both of which have been as soft as a ship owner's order book recently. Hmmmm.

This afternoon's price action suggests the market is fully discounting tomorrow's ECB announcement as a world beater so God forbid it turns out to be just Europatch 1.0.768 - Available for download but not in conjunction with previous offers, not compatible with Spanish, Italian or Greek debt, please see manufacturers guidelines, any breach of conditions will void warranty.