Thursday, July 18, 2013

Summer "Meh"

Seasonal trading in London. A few days of hot weather and the media are trotting out spurious statistics on the number of deaths caused by the heat and looming water shortages. The authorities, to be seen to be "doing something" and avoid corporate culpability, are issuing warnings that boil down to  "Heat is hot" and "Don't do anything that sane people wouldn't do anyway"  such as  "If you can't swim - don't". 

With the average number of deaths per day in the UK at about 2,000 (so 28,000 over the past 2 weeks) TMM think the additional 700 being panickly reported as caused by heat is pretty insignificant. But the "Something must be done" media mentality has taken grip. TMM are looking forward to Government edicts that statistical blips (and the sun) are morally wrong and that those with fridges should do their "fair share" by leaving their fridge doors open (forgetting the 1st law of thermodynamics). TMM however say "Enjoy it while it lasts, you'll be moaning about rain within the month". 

So why mention this apart from TMM's running ire with UK press and politicians? Well, there is another reason why these stories are on the front page - There isn't any worse news to replace it. The UK is doing OK. Retail sales this morning confirm the recovering trend in data that has been in place since May and things really are looking up despite the BBC's continued attempts to blame government cuts, this time benefit caps, for our "disastrous" living conditions. They really are the Zero Hedge of UK economics. 

Moving on, yesterday's headline event saw The Beard manage to hold a central line and, despite our hopes of a market seeing him as more hawkish than they thought, it appears they have finally got the message. Policy will be responsive to economic conditions. Yes folks it's called nuance and as we learned during the European problems of 2012, the markets aren't very good at nuance preferring the black and white of either boom or bust.    

So if BB was, as many reported, dovish relative to market expectations we wonder why the performance of equities has been particularly lacklustre and any softening in USD vs EM we might have expected hasn't happened. In fact the reverse in INR with USDINR pressing on and Indonesia appearing to have chucked in the towel. US10y has dipped 7 bp to just below our mental anchor point of 2.50% but all in all not a ballistic response to a "dovish" Humphrey Hawkins statement. 

The Carneyage resulting from the 9-0 BoE vote was kneejerk as further examination of the minutes showed that things weren't all one way and that further QE could be useful (Para 28). But the BoE is generally adopting the new Monetary Policy fashion of forward guidance over action. Watching these central bankers get to grips with forward guidance is like watching a 4 year old's first attempts at riding a bike without the stabilisers. Exceedingly wobbly and prone to reckless deviation from the desired course, though Ben appears to finally be getting the hang of it. 

So, what are TMM doing? We are still holding out for a corrective turn in markets. EM hasn't calmed down post Ben and equities have not ripped higher so despite this "Meh" response, we would suggest that the market set up is vulnerable to a small bit of bad news tipping things lower pretty quickly. A correction is in order. But as for what that cause may be, well, as with the best bits of unexpecteds we don't know, but a friendly bet on some stupid comment from a European is top of the list.

Until we get it,  Meh = carry creep


abee crombie said...

" and equities have not ripped higher" -- I guess you must not be talking about US equities or even EM, where the bounce seems in place. I would agree that European equities arent back at highs, but they have actually outperformed SPX since the late June low, bouncing by roughly 8% (Stoxx 600) with out performance in IT and Industrials.. PORT SXXPIEX GY vs SPY US for those with a bberg

As for the news, be glad you arent inundated with the zim or fake pilot names which were hillarious

Polemic said...

Abee spx trading 1670-85 range for past 5days and staying within again yesterday didn't look like much of a result after yests hh. EM .. asia mixed overnight and ce3 and rest not looking hot. Africa mixed... i wouldnt call any of them a succesful launch post bb.

Though US open as i type trying to take things finally higher..

abee crombie said...

fair enough Pol, the past few sessions have been a bore, but we have seen a strong bounce post Fed meeting melt down. And spoos near the recent swing highs so some consolidation isnt out of the ordinary.

The set up from early 2011 is looking sorta familiar though I cant see, like you, what the storm clouds are just yet (EM, rates, china?)

Leftback said...

Summer in London. Sweaty Tube trains, sweaty people, not much air conditioning. Massed ranks of drinkers outside the pubs every arvo. Has me quite nostalgic. Isn't it about time the tabloids paid some ladies to get their norks out in Trafalgar Square and frolic in the fountain?

Suk Mei Kok said...

Appalling example of racist humour. Just waiting for the flight attendant's names now.

Leftback said...

TMM, the RSX and EWZ are looking to be best of the bunch in EM land thus far. We have been pointing to value there for some time and the last few weeks have been pretty good.

VIX being crammed down again, a reading of 12-13 has usually been a good time to buy some insurance this year. Vol sellers have had it all their own way this week.

Anonymous said...

i'm feeling melt-up in U.S. stocks. huge eq fund underperf YTD growing wider, and thus the 'dash for trash' is en fuego--levered beta, most shorted, weak bal sheet and drag baskets all gapping past the benchmark S&P YTD again, as funds getting grabbier for upside.

equities inflows have resumed in size. EM is reaccelerating, while rate vol is again rolling over (see inverse correlation btwn MOVE index and RTY). and investor sentiment like AAII bull-bear spread still sits below year highs. HIGHER.

Nico G said...

everytime i read "melt-up" more than once in la blogosphere i like to reinforce my shorts

and dip-cover them later

Leftback said...

Possibly higher, but more inclined to fade panic buying and momo melt-up chasers - see dodgy earnings yesterday evening as we get early evidence of the effects of the last few months of King Dollar on companies exposed to RoW.

abee crombie said...

LB/DD , Cys released earnings yesterday. Horrible as expected but BV was 10.20 as of June 30 (a little lower now likely) but at a 15% discount, its not bad.

Leftback said...

Re: CYS, the wisdom of owning the preferreds (8%) and then punting the common shares has been more than vindicated in the REIT space this summer.

The worst is over, for sure - at least until that big +500k jobs number comes along and Bernanke ends all QE and hikes rates by 100 bps...... don't hold your breath.

Leftback said...

Stevie Conman under investigation. The prospect of SAC being wound down is just one reason to fancy a punt from the short side. The others are vanishing VIX, expiration, boundless investor optimism and a big pile of earnings that count next week....

More arcane is the Detroit bankruptcy, hints of other muni issues, and a steadily and stealthily stronger Treasury market.

amplitudeinthehouse said...


Scoping the market at the half-yearly mark puts our sights firmly on the central bankers ...Qe to be or not to be.
The trader in me is not going to weigh the US fundamentals to much b\c we don't think there is any underlying economic structures that have a higher enough illusory component embedded in it that is likely to cause a collapse in the US market once ignited ..we know about the Student Loans , and a handful of US regional housing booms that have developed b\c of a dislocated forecloser regime in the US as a whole...but they seem comfortably buffered within the macro picture.
Looking at Europe and China it's not difficult to tell that better days are still a long way into the future, and it's now obvious that if needed their CBs are going to follow the CB handy cookbook " Go Yennish " ( the new laws of determinism ) that leaves us with the political paradigm weighing more than anything else and that we'll leave to those that are more experience than us...
Instead this trader is going to follow the money , where has it been , where is it now, where is it going...
Having been chased from one form of betting into another it's dawn on us that if you don't know why your in the market at a level of awareness to the degree of stating why the more sophisticated punter is betting against you , than the rest goes without saying.
Any strategy depends on human nature to swing around any given trend , but firstly you have to expose the 'bias" that is immersed in the majority within the stated here by TMM when the FED drops Qe baton other CBs are picking it up ,ie keeping the masses headed in the same direction...In the last profession it wasn't that I read the betting targets wrong , no , I set out knowing it would be years before I had any chance of becoming efficient enough to master the fundamentals ,and that's before training the nerves to handle the action...this leaves me thinking what level of experience does one have in trading in a "Yennish" environment
In the last profession we learnt that following the money can pay off at times , but you need to know whose money it comes with a knowledgeable watermark...having watched with amusement at times how operators chose their investments we decided to take a break from that profession before we we're roped in and guided under their ways...and even though we acted oblivious to the current environment of a handful of skillful earners we sensed that all was not instead we focused on waiting it out while what we had learnt went through it's digestive period and was ready to be implemented....

amplitudeinthehouse said...

Having not the opportunity to trade at a desk and receive credible and not so credible knowledge of what certain market participants are trading one could be left thinking he is at a disadvantage, but in this Qe environment this can be discarded , CBs are the market.
If I'm right in thinking the CBs have been the market since 2009 then just like one is followed from nightclub to dayclub to nightclub to racetrack over the course of any weekend ( you think I'm joking )and displaying a random walk that would make Eugue Fama proud of, one needs to follow the money until CBs are in the rear-view mirror....b\c I don't see a market that's stable enough to handle a handoff at this time.
One trade that has an element of " follow the money " has been gold , the last of our 2011 " Qe Reflexivity Trade " and it did not fail us...we'd guess that the yield in gold was the deciding factor in a market that was overcrowded and the Bad news is Good news variable had grown old it.
That brings us to the EEM element of "follow the money "'s was a proxy for gold .
The HYG and SPY was left to carry the Qe bag of " follow the money " in the first half of this year and it didn't disappoint...the Treasuries being adjusted for Tapering coming down the pipe and a stabilizing macro picture the market action has to be taken as a sign of stability for Equities pop at a time.
Where from here?....the growth outlook is shocking into the EOY...the CBs currency war is here to stay, and we expect more Chinese Burning of the synapses from CBs which is growing old by the day now...and with that it's best to pick the ranges wait for your entry signal and pull the trigger..or better still don't get roped in and guided by any more Qe plays and digest what you have learned and come back and play another time....

She burns friends like a piece of wood
And she's jealous of me because she never could
Hold herself up without a spine
And she'll look me up when she's doing fine
Because the rage it burns like Chinese torture
She's just someone's favourite daughter
Spoilt and ugly as she willingly slaughters
Friends and enemies they're all the same
All the same
Crush her fame
Burn her name

She'll break a promise as a matter of course
Because she thinks it's fun to have no remorse
She gets what she wants and walks away
And she doesn't give a fuck what you might say
Because it cuts her up like Irish mortar
Mother's pride is what we taught her
Soiled and petty as we happily taunt her
Friend and enemy we're all to blame

{She'll burn us bad
She'll flaunt her fame
She'll make us remember, remember her name}x2

If she sits still like she knows she could
She could win this game and be the queen for good
Save herself up for the cream of the crop
Then she'll look us up when she's ready to stop
Because the rage it burns like Chinese torture
She's just someone's favourite daughter
Spoilt and ugly as she willingly slaughters
Friends and enemies are all that came
To burn her name
Crush her fame
Burn her name
Crush her fame
Burn her name
Crush her fame
Burn her name
We're all to blame

Polemic said...

Morning/Evening Amps.

Appreciate your huge input there. Have to say, I am trying to peg together your lifestyle from the few snippets that you let slip and it appears very "Bright lights big city".

amplitudeinthehouse said...

oh yeah, I remember , that's when I used to go school 2 1/2 days a week.

amplitudeinthehouse said...

(This post should be previous to the other)
Lifestyle?..what's that!? today,just enjoying the Weekly Saturday Cigar and Coffee's good.

Nico G said...

so... buy or sell?

so many constipated bears out there

Anonymous said...

C Says
I'm now a bit more bearish , but just remember topping isn't an event. It's a process and it does take time which works against those lacking in patience.

In effect we need to find out just how much of western growth in this cycle was tied into the expectation that growth in China et al was going to be sufficient to offset global deleveraging. We're getting to it with latest earnings coming out.

abee crombie said...

I was listening to the BX conference call, who I think, are more important than the squid, as they represent real money.

Schwartzman and crew believe that if higher rates accompany improved economic performance it will be OK for asset prices.

But is that really the case today. Sure US employment is improving? But PMIs not so hot around the world as revenue growth seems to have topped out.

We will reduce the fiscal drag next year in US/EU and higher asset prices can have a feedback effect but overall I too am becoming a bit more skeptical of the current rally.

Add to the fact that BX and peers are unloading now, tells you which part of the cycle we are in.

Leftback said...

BX unloaded pretty well in 2007, as I remember. LB is wondering what Amps was on this weekend as it was obviously really good stuff.....