Non-Predictions 5 to 12

Friday, January 18, 2013

TMM have often commented on the PIN (Price is News) function of markets and over the past year that has normally been applied to the self-feeding frenzies of downside moves, where the likes of Portuguese 10yr went to 12% and Spain went on its hikes up 7% mountain. Today we are thinking that the ratio of real news to Price is News on some of the more popular bullish trends is showing similar traits. "Not seen since the last time" comments abound and we feel that it is probably best to stand back, leave our short dated downside hedges in place and go with the flow.

Euribor has been a pain but with Lagarde reminding the market that the European economy isn't out of the woods yet and advising easy ECB policy, we are holding tight (though we can feel the knife steel through the Kevlar of our gloves).Spooz appears to be hung up on 1475 expiries today and each asset market appears to be coping with its own flock of screaming pink flamingo chicks ,  as core asset reallocations take place swamping micro news. Data really appears to be taking a back seat to portfolio flows. 

So on with the Non-Predictions. After charts, graphs and automobiles its time for a more light-hearted look forward, so where better to start than with our annual favourite as its always a sure-fire winner -

5) The BBC will NOT stop linking any injustice anywhere in the world to the UK Government spending cuts and will NOT stop generalising anyone working in a bank as evil but will manage NOT to generalise all journalists as phone tapping, family destroying, moral bankrupts.

6) David Cameron's call for an EU referendum will NOT stop UKIP from pushing the Tories into 3rd place in the European Elections. TMM don't believe that the "long awaited / eagerly anticipated /most important" Cameron speech on EU membership will be enough to swing the "disgusted's of Tunbridge Wells" and the other angry old men of the Tory party who are defecting in "Tea party" style. Perhaps the Tories are missing the point as polls suggest UKIP is winning on immigration policy rather than abject anti-EUness.

7) "Blogger" will NOT cease to irritate TMM by screwing up the formatting whenever they try and post something. In fact we might expand that to - The huge technological giant Google will NOT fail to surprise TMM in the shabby, unthoughtout and user unfriendliness of all of their recent products. (e.g. - Google circles, blogger, impossibility to link Android apps to new Gmail accounts).

8) Vanadium redox batteries, despite their clear technological advantages will NOT catch on as a viable energy storage system. A simple call as TMM have had investment in them for many years and have seen squat return so far so TMM really can't see why things should change this year. Though they should.

9) William and Katherine's baby will not have the same first name as a global leader or leader of a UK political party. Or James (Jimmy).

10) It will NOT rain on St Swithun's day in the UK. It's only 9 months ago that the UK was in the grip of hosepipe bans and dire warnings of the most dreadful drought. Back in March TMM remarked that the introduction of the ban was fantastic news as hosepipe ban announcements usually saw the onset of biblical deluges. And so it was. The UK has racked up its wettest year since some other wet year and we are drowning in forecasts of more to come. Knowing how the Press and of course the markets,  love to extrapolate (we can remember the predictions ten years ago of "no more snow in the alps" and  "plant your English gardens with cacti" articles with wry pleasure) TMM will instead apply their strong belief in mean reversion  and will predict a lovely UK summer this year. 

11) This year's New Year diet plan will NOT succeed and, which ever new fad it is, will be quickly usurped by another "foolproof" diet which insists on highly expensive books, ingredients, apps and plans. TMM don't know why if people can't grasp the simple concept of "calories in versus calories out" they think they can manage anything more complicated.

12) The UK press will NOT fail to publish a picture of a prat on skis trying to get to work everytime it snows.

Posted by Polemic at 12:05 PM  

64 comments:

I am sorry but I begin to wonder if one of TMM is in the transition period.

Anonymous said...
3:49 PM  

I M NOT FUCKING MENOPAUSAL I'M JUST FUCKING STRESSED AND YOU ARE NOT HELPING. .. And no one understands!!!

Polemic said...
5:58 PM  

Lol

Anonymous said...
8:21 PM  

Don't worry Pol. It's not you, it's me.

Phallus Majorus said...
8:30 PM  

Pol

You need some Vitamin P

Anonymous said...
11:24 PM  

Nice article, thanks for the information.

9:19 AM  

Pol is suffering from Low M, a syndrome where Macro correlations fall below the level where a Macro Man can function normally...

Leftback said...
3:00 PM  

Classic Sell The News reversal after BoJ. A few long yen positions might be handy in the near future? I am expecting an attempt by USDJPY longs to buy the dip, but it will fail. I am getting more bearish by the minute, and I think it is a week to fade strength in equities. EURUSD seems to have run into a wall, and a slow walk back down to 1,28-1,2900 area looks plausible. Wonder if Cyprus can be turned into a mini-drama long enough for the European banks to generate more ECB largesse? A bit bearish on Europe and EMs for the short term here. Don't like much at the moment, really, certainly not US equities.

There is an ongoing problem that Greek banks will soon need to be recapitalized by some method (a combination of equity dilution, bond offerings and bailouts being the obvious formula). Look at the charts for NBG versus the broad Athens index and you'll see the issue is on investors' minds. NBG has obviously a lot of exposure to Cyprus, so although this isn't a huge deal in terms of bailouts, we can expect some turmoil and ritual complaining from the Germans before the inevitable bailout arrives. Thoughts on this anyone?

Leftback said...
3:07 PM  

Richmond Fed -12, btw. That's Empire State, Philly and Richmond all coming in worse than expected, as the fiscal issues continue to take a bite out of US cap ex especially. Time to temper one's enthusiasm for Uncle Sam's steady recovery for the time being. Existing Homes was also weaker and the number is being spun furiously (not enough housing inventory, apparently!) as I type.

New Homes number ahead on Friday, and we may soon see a reversal in the recent space rocket-like trajectory of the US homebuilding stocks. It's not that there isn't a modest recovery in US housing, it's that the market is pricing in 2005-2006 like performance, which seems just a bit dopey. A lot of small investors have been sucked into these names now in the usual wave of January enthusiasm, so it's likely that they will be pantsed fairly soon. We expect to see some homebuilders emulate those early North Korean satellite attempts.....

Leftback said...
3:51 PM  

Interesting...

I had a quick look at some Greek banks' balance sheets today (incidentially). So far only FY2011 figures are available, but they tell the story already. Either the equity is small (reduced by 90%, say, compared to FY2010) or already non-existent (NBG especially). I know some mergers are being discussed, but honestly, this will lead to combined entities with hopefully positive equity and something like 100 times leverage (loans to equity).

NBG specifically is c. 8.6% government owned, some 4% are spread among various mutual funds (BlackRock being the first in line as so often), so I wonder who holds the remaining 87-something %. Greek pension funds ? Retail ? Anyone still right in their heads ? Any recap will be bloody. The question is who gets hammered.

Eddie

Anonymous said...
4:39 PM  

I had to let go of some positions very close to my heart today, because I can feel that at these prices they are more likely to turn sour than sweet. So long subprime, hopefully we can meet again at lower prices. -DD

Anonymous said...
5:31 PM  

C Says'
I can see the nerves starting to twang ;)
The question bouncing around in the amygdala of the trading world is still "please don't take my profits away".

Anonymous said...
6:08 PM  

It's quiet out there, too quiet. Complacency rules...

10% Corrections Have Been Abolished

Bullish Sentiment Increasing

Leftback said...
6:44 PM  

Eddie, regarding recaps, the answer to who gets hammered has normally been "not the senior bondholders" (Blackrock, pension funds?). Common equity holders, Greek taxpayers? Sure, why not?

This is one to keep an eye on. We have assumed that nasty messy stuff like this would get done during happy clappy times when the markets are doing well. Times just like this, for example.

Markets can smell this one coming. Look at the charts for NBG versus OTE or CCH, which presumably are in much better financial shape.

Leftback said...
6:51 PM  

More complacency from the media mediocrities...

Market Going Up Forever

Leftback said...
7:00 PM  

C Says'
You're right there's a lot of bullish noise at the moment.Ignoring that,to me I'm still seeing that godawful choppy price action that grinds people into dumping early then moves on looking at the price thinking " I wish I.."
Watch out for that Amygdala,it's a swine .

Anonymous said...
8:43 PM  

Lb.never sell a quiet market!

Polemic said...
8:44 PM  

Very true, Mr P. That old chestnut is a good one.

Still long here (EMs and Europe) in fact, but not as painfully and massively balls to the wall long as was previously the case, while looking around nervously at increasingly giddy media and highly leveraged HFs and margin traders.

Leftback said...
9:45 PM  


Lots of Good information in your post, I favorited your blog post so I can visit again in the future, Thanks.

9:01 AM  

LB,

that is precisely my point. Senior bond holders might get away... or not, we shall see. I wouldn't be too surprised if see most of the NBG (and other Greek bank alike) located at Greek retail and pensionists. Maybe even packaged in some way that it doesn't smell imediately. Which would imply that any writedown would have massive political implications (remember Bankia where they sold prefered shares to illiterates saying these are as good as a savings account ?).

On a related topic, GMO published a nice piece about China last night. Some interesting (and scary) details for the China bulls among us.

Eddie

Anonymous said...
10:41 AM  

I meant NBG equity of course.

Anonymous said...
10:41 AM  

It is getting a bit silly season among the punters:

79.6% Overbought Reading for S&P 500

Modest corrections (3-5%) usually follow such extreme overbought conditions. Even M. Blanchard is trying to pour de l'eau froid sur le marché aujourd'hui.

Leftback said...
3:40 PM  

C Says'
Amygdala !
If I didn't know better I'd think you were due out on your first prom date ;)

Anonymous said...
4:39 PM  

AAPL down 5%, let's see if that activates anyone's amygdala in the morning.... I know, fear has been abolished.

Leftback said...
10:24 PM  

C Says'
I'm not interested in AAPL. I am interested in the current view I have across various asset groups though. At this juncture I think the New Years resolution to take more risk is due for a test of resolve.
In which case it's worth noting that the Amygdala is not always to be ignored.

Anonymous said...
10:41 PM  

I have no position in AAPL. But some of the extremely big boys do and there are these things called ETFs that own a lot of it. So there is likely to be at least a small spanner in the works tomorrow, despite all those who believe in the efficient markets hypothesis. We are short some of the other stuff in the IWM and QQQ ETFs.

Let's say AAPL gaps open down 10%, ETFs will sell AAPL and people who own the ETFs will have to sell some SPY and QQQ, then we will probably see the dollar firmer and that will unwind some currency positions and cause a bunch of FX effects that might start a little carry trade unwind. Not exactly a butterfly flapping its wings, but you get the picture...

Leftback said...
10:55 PM  

C Says'
I've still got to back off right here. I'm gradually selling into this to lighten. I'll just keep doing that for the moment.
Intraday weakness has been getting bought on the FTSE giving a sense of underlying strength of moneyflow. Rotation has also been going fairly by the book.Defensives in my view though are expensive if that carries on it will make the lighter position more valid as we go.

Anonymous said...
8:04 AM  

C Says'
Re APPL best explanation I heard of for them is they hit the magic weighting. That is when a company get's to the size that it's approx 6 or 7% of index that it's tough whatever reason to get higher cap. because the portfolio allocation is maxxed out for most investors particularly funds.Hence, by the time they hit bottom they are probably going to be back at a more respectable 3 to 4% level.
Indeed the above is the ebst argument I have heard for discounting all the sill reasons why the share price of these behemoths can keep on going up.

Anonymous said...
8:18 AM  

C Says
How can I be short when 86% of clients, at a shall not be mentioned spreadbetting amateur hour,are currently short the FTSE ?
That is so begging to be squeezed !

I also get it for the US .Everybody and their Aunt is looking at the big round number, and heaven help me Miss Daisy ,but that comes as todays' special with a triple topping ;)

I wonder how many have been getting their premptory strike in early just for that? There is a sense of the obvious about that that also disturbs me.Suffciently so that I think it would be interesting to have some part of the risk involved in seeing if it can be squeezed.

Anonymous said...
9:16 AM  

C Says,
Taking that further 67% short client base on the DAX which has been going sideways tight for 4 consecutive weeks. That almost makes me feel like taking it long.

Anonymous said...
9:35 AM  

C Says,
I can get this.Prior to the New Year I could see the US debt ceiling being resolved leading a risk on moneyflow,BUT I also thought after the New Year it would fizzle and go backside flip on us. The price action has never reflected that though."Overbought" indicators though will have been worrying the crap out of people at these levels so they will have been increasingly getting short hence those % above.

Dare I say.I think I can also see some people getting short banks again.

Anonymous said...
9:49 AM  

C, too many bulls in fur, it's actually bullish?

I can see that, but in credit, while I wouldnt want to pay the carry to be short and bleed to death while waiting for Go-down (see what I did there), I certainly have no qualms about taking some off since the delivered yields have been heavily front-loaded, and I am not sure really I am missing that much by cutting some.

Equity meltup is another story of course.

DD

Anonymous said...
11:40 AM  

If this action doesn't convince you the PPT exists, nothing will.

Anonymous said...
2:51 PM  

Isaac Newton Day in the markets.

Cold morning over here in Hedge Land, TMM, cold enough to partially freeze the Mianus.

Leftback said...
2:52 PM  

US initial claims falling, US PMI rising, US home prices rising. Time for some caution.

Markets peak on good news, not bad.

Leftback said...
2:55 PM  

The eventual retrace in dolla yen is going to be painful. Almost as painful as trying to time when it happens...

Anonymous said...
3:18 PM  

Meanwhile, poor Betty is getting quietly hammered.
DD

Anonymous said...
3:31 PM  

C Says'
Lb,
"markets do top" on good news,but really we need to take that further to make sense of it.
I hypothesise twofold; first it's an all-in situation that's been long in the building;second monetary and usally some tinkering with margins etc come along in tandem.
The two together alter the balance in urgency between buying and selling.
Now the question is,on the current good news do we actually have any of the underlying factors mentioned yet?
Personally,I don't think so albeit the post New Year moneyflow leads me to believe that we are now into what I could call the final leg for risk before it makes a mean reversion move.

DD
Credit, broadly I agree,but in fairness this is what I have been gradually reducing for the last 2 to 3 months although it's still fair to say there are a couple that I think might yet give up a little more.
One of the cross views tells will be to look at corporate debt and see how it reacts vis a vis equity.

Anonymous said...
3:43 PM  

Naughty I know ,because I did say you would have to pry it from cold,dead hands. Well,they're cold ,just not dead so it was only half a lie.

Anonymous said...
3:45 PM  

C Says'
LB got the 10% on AAPL,but actually was that theeee capitulation move ? 40-50$ vacuum now asking for someone to fill it with Kevlar. 10% were those numbers really that bad ? Personally I don't think so ,more a case of some weak hands.

Anonymous said...
4:22 PM  

In re: AAPL, nothing wrong with the earnings at all, as you say, C, but that's not what is going on here. It's b/c of all those weak hands involved (fast money + retail), that LB expects to see a series of dead cat bounces in AAPL, all met by sellers who bought into the high $500-600s and need to limit their pain. Poor bastards.

LB thinks that a 3 handle, maybe $385 or so is not completely out of the question, at some point. Maybe one might begin buying at $410-415, but don't be surprised to see AAPL lower.

Leftback said...
4:53 PM  

200w average in AAPL is what everyone and their mother is now eyeing. This of course means...

Anonymous said...
4:55 PM  

C Says,
Have to say I don't know too much about AAPL per se,but I looked and thought if after a drop like this it could sneak down on quieter volume to 435/440 then it setsup one of my favourite swing plays.

Anonymous said...
6:04 PM  

Who needs AAPL when you have stocks like LNKD and NFLX, currently trading at multiples like 200-300, not to mention the recent gravity-defying rise of the homebuilders, many of which still have yet to make a profit over the last 5 years. But the entire sector, and the ETF (XHB) is going into orbit, despite the allegedly "red-hot" state of the "vigorous" US housing market. (The NAR is as active as ever in the dissemination of propaganda, using their traditional weapons of fear and greed). Buy now, or be priced out for ever!

Leftback said...
6:22 PM  

Don't look, but it seems to me there are early signs the duration bits are starting to do better than the credit components.

Not bearish, but you know, Tarpeian Rock, Capitol and all that.

DD

Anonymous said...
6:39 PM  

Arx tarpeia Capitoli proxima?

Wise words, indeed...

Leftback said...
7:45 PM  

C Says,
NFLX indeed,Icahn says',

“We still own every share we bought and we believe it’s still got tremendous potential,”

Amusing,I recall Crispin Odey said the same thing word for word about Barclays in 2010 . At the time Barclays has risen from the depths to nearly £4. I don't recall hearing much from Odey has they descended to £1.30ish,but I'm sure he still owned every share etc etc.

I suspect in another life they were all Dairy farmers,because they appear so natirally at home dealing out bullshit.

Anonymous said...
10:21 PM  

C Says'
Another week closes and yesterday US equity struggled despite the 'good' data surprise.Clearly technically nervous,and I have no idea what overall effect AAPL had beyond itself. Brave man who wants to carry the short further though with a gap that big behind the position.
FTSE caught people short again,but noticeable that cover buying still only yielded a 1% day .Lower down that would have been around 2% so shaking out of short positions is getting harder to do.More conviction so I think choppy and a bigger correction needed to entice buyers back in.

Anonymous said...
7:14 AM  

this euro run is really going to hurt someone at some point. you know, like countries selling cars, machinery and such. DD

Anonymous said...
11:41 AM  

C Says'
What do you mean "at some point"?
VW today announced they are moving production for the Americas from Germany to Mexico on the basis of labour costs AND to nullify the effects of currency volatility.
Heinz should note his 57 varieties just shrunk to 56 !

Anonymous said...
1:29 PM  

C Says'
Currency market may yet end up being the next regulatory target.
In a world concerned with the leverage employed there is no better target.

Anonymous said...
1:31 PM  

Per McMillan: Equity-only put-call ratios are on sell signals. It is quite unusual to see these reliable intermediate-term indicators on sell signals, yet the market continues to rise.

Anonymous said...
3:57 PM  

ZH has this nice 10 year chart of US New Home Sales today, which rather begs the question of why exactly the XHB is being bid up, when the much-touted US housing recovery seems to be a mirage at best:

New Home Sales Surging... NOT

Leftback said...
5:15 PM  

EEM and AUDUSD are showing signs of rolling over. Sticking to the global recovery thesis and still long, but with these charts and the put/call ratio where it is, feeling more and more cautious.

Leftback said...
5:37 PM  

Funny you'd say this, we have had AUD March puts as cover for a week now. Cheapest vol around it seemed to us, plus a decent seat to watch potential AUDJPY shakeout without having to stand in front of the freight train. HY protection begs to be bid, too, but we're not biting yet.

We'll miss the meltup, but will sleep better. And if anything, there is always Icahn vs. Ackman on tv to entertain us.

Anonymous said...
6:39 PM  

There are some extraordinary disparities of valuation in this market, I'll say that. The 10% decline in AAPL was just a taste of the amusement that awaits us when this market turns.

Leftback said...
9:39 PM  

Nice article, thanks for the information.

7:34 AM  

here comes the KRW... maybe the Kospi will come to life now.

so far TMM looks a litte in the red on that bet but lets see

abee crombie said...
1:44 PM  

Sorry quiet, just back from skiing. More soon.

Polemic said...
1:58 PM  

Holy Durables, TMM ... the only problem with this from the perspective of US longs is it raises the potential for a change in FOMC statement toward less dovish language in view of a stronger economy.

Leftback said...
2:36 PM  

Look, Vanguard ETFs are selling $11bn out of Korea from January until March this year. This should be part of the timing equation for your investment thesis because index rebalancing does not care about fundamentals.

Anonymous said...
4:24 PM  

Seems like ages ago here we were discussing the Short Havens trade. Sell JPY, CHF, ZAR, gold, bunds, JGBs, gilts and Treasuries.

Here is a summary of some of these, with charts:

Safe Havens Unwinding?

This seems like the story of 2013, but of course there will be some interruptions along the way, and February seems like a good bet for such a pause. The meat of the earnings season is upon us now, and the Sequester lurks somewhere behind the Curtain as Panto Season threatens an encore.

Leftback said...
4:53 PM  

Emerging markets trading like crap again today. As are US homebuilders (XHB). Not everything is going to the moon, just the social media stocks. FB reports on Wednesday, couldn't this be just a massive pump n dump..? Nah, perish the thought.

Leftback said...
5:45 PM  

safe havens unwinding while shiller CAPE looks a tad too jolly. Play ball!

Anonymous said...
5:55 PM  

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