Thursday Musings

The Fed might not have used the I-word  but their discussions behind the scenes towards continued QE must have involved it. We would like to think that they were too concerned about market reaction if they had used the i-word and judging by the reaction received to the mention of "tail" they were right. We can't say we are unhappy with the market response and do see it as the catalyst to moves that have gone global and multi-asset. All reinforced by China's comments on slowing the housing markets in overheating cities extending the pressure on yesterday's commodity moves and this morning's European data separately undermining Europe. So that's three out of three for negatives from the major global regions. 

This is  enough for us to stay seated in the bus stop letting a few more pass before getting back on. Do we go short Equities? Not yet. We still want to buy at some point and don't want to go against our core theme. Buying cheaper will be enough for us as this still looks at best like a 5% correction possibility in SPX rather than a major new bear phase.  However we are looking at tactical shorts in other recent popular trades as the "3 out of 3" should cause more of a shake down. So what else has been complacent consensus for the past few weeks? In FX land you cant get much more consensus than short yen and, on the long side, we would suggest that NZD and MXN must be up there with the best so we have taken speculative shorts in NZD/JPY and MXN/JPY (again) expecting this general correction to continue. 

Is this a new theme? Whilst the breakeven prices haven't really moved it does look as though the speculative inflation expectation trades in other markets are unwinding. Rather than a big new theme developing it so far appears to be positional as we drift back to a less exuberant trajectory in growth and inflation expectations. Equities off, metals off, oil off, USD up everywhere (except vs JPY which is basically a loaded trade) and finally Gold. Each morning we hear how heavily the Chinese are buying and every morning it falls harder. Not a bullish sign. Picking a right level for gold is pure supply, demand and, more importantly, the psychology of price anchoring, so rather than pick a target level, TMM would rather just predict "it continues to fall".   

In the UK the mighty pound is suffering a right Mervynating. to the point that we think that Merve may well have a Harold Wilson moment -"From now the pound abroad is worth 14 per cent or so less in terms of other currencies. It does not mean, of course, that the pound here in Britain, in your pocket or purse or in your bank, has been devalued."  ( Harold Wilson 1967).  Which has put GBP only just behind JPY in the league of currencies to sell. Very "Macro 1990s".

Now back to Europe. It's nearly March and March has historically seen the start of Euro-season, where happy hunters flock to the European bond markets to blast away at plumped up and overfed Euro-birds.  

Whilst today's focus has been on French and German PMIs, which in TMMs eyes may look headline soft, but do contain some structurally encouraging signs, there are signs that stresses are building again. The peripheral bond markets continue to underperform. 

The real shocker that seems to be sneaking under the radar is what's happening in Holland. This morning's collapse in consumer confidence to -44 from -35 leaves it at it's lowest level ever since the series began in 1986. House prices are accelerating downwards (-9/6 y/y from last months -6.3% y/y) and the unemployment rate rising. This leads TMM to wonder whether we are seeing Holland move from core and periphery. It's interesting to note that if there is one country which should give Fred the Shred (of RBS fame) asylum, should he lose his false nose and beard and be hounded out of wherever he is, it should be Holland. Without his wonderfully timed cash purchase of ABN, they would have had sovereign debt/GDP ratio roughly 10% higher. He saved their arses.

With that we will leave you as we return to watching the screens turn redder.

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amplitudeinthehouse
admin
February 21, 2013 at 12:56 PM ×

Not going on one day's movement alone, but you do know this Matrix isn't going to end well..if you don't ,, then let these guys spell it out for ya!

http://www.youtube.com/watch?v=CWNDW5KtiKk


My shadow side so amplified
Keeps coming back dissatisfied
Elementary sun but its so
My love affair with everywhere
Was innocent why do you care
Some one start the car its time to go
You're the best I know

My sunny side has up and died
I'm betting that when we collide
The universe will shift into a low
The travesties that we have seen
Are treating me like Benzedrine
Automatic laughter from a pro

My what a good day for a walk outside
I'd like to get to know ya little better babe
God knows that I really tried
My what a good day for a take out bride
I'd like to say we did it for the better of

I saw you there so unaware
Those humming birds all in your hair
Elementary son but it's so
The disrepair of Norma Jean
Could not compare to your routine
Balarama beauty going toe to toe

My what a good day for a let it slide
I'd like to say we did it for the better of

I thought about it and i brought it out
I'm motivated by the lack of doubt
I'm consecrated but I'm not devout
The mother the father the daughter

Right on the verge just one more dose
I'm traveling from coast to coast
My theory isn't perfect but it's close
I'm almost there why should I care
My heart is hurting when I share
Someone open up let it show

My what a good day for a walk outside
I'd like to think we did it for the better of

I thought about it and i brought it out
I'm motivated by the lack of doubt
I'm consecrated but I'm not devout
The mother, the father, the daughter

You don't form in the wet sand
You don't form at all
You don't form in the wet sand
I do
You don't form in the wet sand
You don't form at all
You don't form in the wet sand
I do

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leftback
admin
February 21, 2013 at 3:03 PM ×

Philly Fed worse than my pessimistic expectations.... and commodities not buying the robust global recovery story.

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Leftback
admin
February 21, 2013 at 3:06 PM ×

ITA-GER spreads reflecting the Berletchsconi Factor.

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Anonymous
admin
February 21, 2013 at 4:00 PM ×

C Says'
Don't think this had much to do with "inflation".Just a preliminary dry run of what might happen when the Fed signals exit. The response should be warning enough to leverage of what might happen when they stop hinting at it and start doing it.
Europe,no surprise.Indeed France and the CAC imo are so suckable that in tribute to my £ long I ran 6kms up the Champs for lunch and smirked at the Louvre finish. Grand architecture in Paris,but mostly old and begging the question,"France what have you done lately other than suck off the European tit?". The answer of course came yesterday from the Titan CEO.Bluntly forbidding summary.

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Leftback
admin
February 21, 2013 at 4:01 PM ×

Vietnam in a serious Cliff Dive. No wonder there is some strength in JPY today.

VNM Cliff Dive

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Anonymous
admin
February 21, 2013 at 5:43 PM ×

That Titan letter sure struck a chord, but that would be more luck (or savvy PR/marketing sense) than anything else, as the actual contents sounded very much like usual hubristic Yoorptalk, which while amusing for a while, gets tiring very quickly.

Also interesting that a CEO publicly boasts about "paying less than one Euro per hour" in India or China. I might read the social mood wrong, but I wouldn't be surprised if social tolerance for that trade were to quickly go the way of the Starbucks tax arb (and then of course, there is this little thing about wages growing over there anyway, so all in all not too impressed with the redneck rhetoric)

DD

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Anonymous
admin
February 21, 2013 at 6:59 PM ×

C Says'
I have little empathy with the Titan pillock. I understand him better than he understands himself.However, by luck,or otherwise he still hits' the nail on the head.France are more 'old' Europe than most of the Med countries who are actually supposed to have the problem. 'Old' Europe is simply not compatible with the gloabl economy that politicans have worked long and hard to shape. France have been very fortunate to be able to suck on the benefits of post millenium Europe withpout seriously considering ,or embracing the reform that would enable them to stand alone and compete globally.This is their year in the sense that last year was about Spain.This year France will be front and centre.France is the achilles heel for Europe.Could I be wrong? Not a chance. ;)

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Leftback
admin
February 21, 2013 at 7:25 PM ×

Yes, the Myth of American Exceptionalism at work again. I agree about Social Mood. I am surprised we haven't seen demands for divesting from gun makers and child labor employers. If people ever get their head out of their Facebook page, it will happen.

The Titan CEO, being as he is a red blooded 'Murkin, is much smarter than those Frogs and other people over in Yoorp, so he kin figger out how to hire child labour in Vietnam and Thailand to make widgets, hot diggety.

Market bounce was predictably weak and I think we will go lower today and tomorrow, possibly much lower and very quickly, especially if Europe gets a bit panicky again. If 1490-1495 doesn't hold it will be express elevator down to 1450-1460 before we can catch a breath.

Whether that was THE TOP or A TOP for the year will depend on how much technical damage is done to how many stocks and how quickly, I think. Bonds and commodities have been pointing at economic weakness ahead for a couple of weeks now.

Yesterday LB had some quite uncharitable thoughts about the disposition of XHB longs. He would like to repeat those now, with regard to the aforementioned longs choking on their own leverage..... there is a nice little gap down to 26,75 and then the 200dma is at 24,50 or so. We'll see you there....

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Leftback
admin
February 21, 2013 at 7:30 PM ×

Btw, "C", I totally agree with you that France's economy and perhaps its bond market will be the focus of some renewed distress in Europe this year, and the source of weakness in EURUSD and friction between Mangler and Hollandaise.

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abee crombie
admin
February 21, 2013 at 7:53 PM ×

TMM your FX calls hit a tone with me. MXN positioning is a little too heavy and the CB is meeting next week possibly lowering rates feels like a good time to step aside. But its interesting to see the ZAR hold in there as well.....CAD has actually been creeping lower, a surprise to me.

Homebuilders taking it on the chin recently too. I am with you, not thinking this will be the start of anything but it has been pretty non stop selling so far.

Gold is gonna break major support @ 1550, just a question of time. But get get ready to load up around 1200-1300... if it gets there, its a career making trade

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Anonymous
admin
February 21, 2013 at 8:06 PM ×

C Says'

"Net long exposure to stocks in hedge funds climbed to 52 percent in the fourth quarter, matching the 10-year high reached in the first quarter of 2007, a team led by Goldman Sachs’ Amanda Sneider and David Kostin said in a report yesterday"

How reassuring.Then add in what for the associated FX? And they are not known for being highly geared are they?

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Anonymous
admin
February 21, 2013 at 11:12 PM ×

Stevens is not cooperating

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February 22, 2013 at 2:37 AM ×

Stevens is muddled. One one hand he's optimistic, but on the other he's still in rate-cutting mode. It doesn't add up. It certainly hasn't had the expected effect on the AUD, however.

It's all bank-related today. The big 4 will continue to cry poor on wholesale funding costs as their margins increase.

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Anonymous
admin
February 22, 2013 at 8:45 AM ×

C says'
Stevens disagrees with me,but my initial long £ short the AUD$ is in.I'll be looking at the US$/AUD$ for a suitable entry.Oz and Chinese policy rumblings are joined at the hip.

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Polemic
admin
February 22, 2013 at 11:04 AM ×

Well re Stevens...is it that confusing?
He's optimistic given the signs he's seen of the impact of earlier monetary easings on various areas of the economy (and he gave examples, eg. housing sector and confidence).  BUT the bank maintains an easing bias b/c 1) downside risks to the outlook prevail; 2) we need to see a pick up on non-mining activity, particularly investment, to offset the peak in mining investment over the next few months (but the transition to nonmining growth drivers may not be seamless); 3) China growth picking up but ToT still seen to fall over coming years; 4) exchange rate channel of transmission of monetary policy has changed (is traditionally a shock absorber for the Oz economy); and 5) because all the signs are pointing to continued soft demand for labour (it is a lagging indicator) which underlies the RBA's forecast rise in the u/rate.  Therefore the RBA is in datawatch mode for now.

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Leftback
admin
February 22, 2013 at 3:48 PM ×

This morning's rally in EMs played for about as long as the mariachi band on LB's subway train, and collected about as many coins. This little bounce looks like it was mainly short covering, and neither FX nor bond markets wanted anything to do with it. With a possible Berlusconi win or more likely a stalemate result ahead in Italy, we think it's sell the rip for now, not JBTFD.

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Leftback
admin
February 22, 2013 at 5:27 PM ×

Here is a chart that provides data for one of those things that "you just know" from living in middle income America (even if you are a "snobi Brit").

The recent run-up in gasoline prices has led to demand destruction in the US economy and it is a home grown catalyst for a US market decline. This is already in place, even without any external shock like some event in Yoorp:

Gasoline Prices and US Earnings Multiples

This chart relates the peaks of US gasoline price escalations to valuation peaks. As you can see, it is a tight linkage. LB considers the possibility that the US is right now actually already in the midst of a very mild 2-quarter recession, somewhat similar to the early 80s 2nd dip, has received insufficient attention. By the time we see unemployment flatten out or even bump up slightly this summer on new graduates and other seasonals, the market will probably have already registered the fact and Q1 earnings will have reflected it. Lagging indicators and all that....

Sorry to go all ECRI on you, TMM. The thinking here is that "EVERYONE" knows we get a modest correction here, but then JBTFD and QE(infinity) drives the market to 1575 in April before "EVERYONE" expects a sell off. The only problem with this scenario is that the credit markets (EM, German and US) commodities (copper, crude) and the dollar don't seem to have read the script and are forecasting much slower growth around the world than "EVERYONE" is calling for.

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Leftback
admin
February 23, 2013 at 8:45 PM ×

Britain gets the Moody's blues. Let's hope the Gilty parties aren't punished too heavily on Monday. It is likely that this has been anticipated in the recent fall of sterling, but one can't rule out another round of serious Betty bashing in the week ahead.

Moody's Downgrades Blighty

Betty is nominally a RISK ON pair. This means the recent run up by Mr Buck is likely to be further bolstered. The likely immediate beneficiaries of any flight from gilts would be, presumably, US Treasuries and bunds. RISK OFF all round.

Another bad week ahead for metals and miners, UK banks and other FTSE stalwarts, not to mention anything leveraged against USD. Taxi for Goldfinger?

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Leftback
admin
February 23, 2013 at 9:20 PM ×

For those who are big fans of the XHB and indeed the whole US Housing Recovery meme, I could offer you all a huge pile of data, but I am just going to choose two graphs I found this weekend:

Construction Job Surge? NOT

and this one:

Median Sales Price Dead Cat Bounce

One of the few things Real Estate people (and the NAR especially) are good at it is The Con. This is why they sell RE, b/c they can't do anything else but are skilled at lies and deceit. This US Housing Recovery has been a pretty good con, based on a lot of sales of Miami condos and bundling of foreclosures and such in the sand states (not Florida) but it doesn't represent organic demand.

The hype has succeeded in pumping up the price of the homebuilder stocks, but once we have been through March, April and May and we have another dead Spring sales season for conventional properties in most areas, and employment isn't improving or has even gone backwards, then the jig will be up. We expect the XHB to have done a Cliff Dive well before then.

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rp
admin
February 24, 2013 at 8:38 PM ×

Polemic,

For quite some time now I have been trying to replace the words in the Gilbert & Sullivan 'Ruler of the Queen's Navee' with something more wonkish, but have failed.

"So I polished up that handle so carefully
That now I am the Governor of the B-O-E"

Is probably all i can handle. Obviously my life got a bit easier with Draghi at the ECB, then Carneee soon to be BOE, not to mention all the Q-Eeee doing the rounds.
Any ideas?

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Polemic
admin
February 24, 2013 at 10:57 PM ×

Ooo rp.. that could be this week's homework for us..you..me.. good idea

The central bankers song! Could even add berlusconeeeee and now i m not the ruler of italeeeeee

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Anonymous
admin
February 25, 2013 at 8:46 AM ×

C Says'
Well Moody did a moonie allover my £/AUD opening gambit.Their timing too k me by surprise I admit. I thought the sterling slide would find a squeeze now which would tie in with March wider ratings.Then Moodys' decided to step in early.Such is life. I'll stay with it for the time being as i do not know how much of this is already priced in by this years' depreciation in Sterling so I may ,or may not have something that will still work. In any case as I am not yet stopped out it makes no sense to presume the unknowable and stop it out voluntarily.

Certainly I am sure Merv and his crew know exactly what they are doing when they 'talk'.All part of the stagflationary policy for better ,or for worse.You'd be happier with this policy mix if you could see the evidence that our trade balance was such that import offset factors were less than our export gains.Hmmm data anyone? Times like this you really would love to have better control over energy ha ,but that would require a policy wouldn't it.

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Anonymous
admin
February 25, 2013 at 9:07 AM ×

C Says
LB ,not sure I agrre with your comments re Moody and UK shares. I suspect at least to start with this may actually scare still more cash holders.Herd instinct I think will be to see ever higher imported inflation and the most available thing they have to use against it will be equity and indeed as much International equity as they can find. I understand your point about the dollar and why miners should get nobbled,but they like energy have been lagging so they might still get the rather 'blind' growth vote regardless of the fact that global growth does not look that happy as we stand.

As for me getting in short equity I'm still not seeing the way in. I may well be sidelined depending upon how the technical side of any equity rally plays out vis a vis the FX setups.We're still following the Japanese FX/Equity mom play here in the UK albeit with less of the mom. If that keeps playing then I'll be kept out.

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Leftback
admin
February 25, 2013 at 3:36 PM ×

Conflicting stories out of Italy. The media may have written off Il Cavaliere a little too soon. He keeps on coming back, remember, rather like last night's curry.

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March 13, 2013 at 3:27 PM ×

Stevens is muddled. One one hand he's optimistic, but on the other he's still in rate-cutting mode. It doesn't add up. It certainly hasn't had the expected effect on the AUD, however.

Media Monitoring

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