Monday, September 09, 2013

Rubbish Month and Rubbish Guidance.

It's time that the long absence is explained. 2013 has been a survivalist year for TMM and we have seen some changes that we have so far overcome but are now struggling with. CPMPPI and I have both experienced dramatic changes in our employment situations leaving CPMPPI moving on to a career that precludes him from continued contribution, Nemo is buried up to his eyeballs in his own job and as I now find myself looking for employment I am not sure if I will be able to keep it up either. So that leaves new recruit "GMS" and I feeling a bit like Custer and his mates. Throw in a surprise death in the family which involves diversions of practical response as well as the usual emotional support and really the last month has NOT been the easiest to contend with.

It has also led to feeling of a disconnect between self and market. Micro plays and nuances are not becoming discernible from this altitude and the big macro landscape appears not really having changed dramatically.

US data isn't slowing. The payrolls print was the only weak one in the past few weeks. ISM, non-mfg ISM, jobless claims, are all still super strong.

China is producing better numbers (note we don't go further to judge the validity of those numbers).

EM is stabilising and everywhere starting with "Ind- " is looking less panicky to the point of becoming bounce attractive.

Europe is seeing PMIs going ballistic. Though we note concern that PMIs may be delinking with regards to GDP but we would like to think its more like there was a 'jump' in the linkage because production couldn't go any lower, while spending could (due to austerity). I.e. EU GDP growth is likely to continue higher, following the PMI prints.

Syria is what we would like to coin as (new term here) a AOAO trade (Armageddon On, Armageddon Off) and so other than buying cheap tails it isn't worth playing in the belly of probability. Much like US debt ceilings and democrat/ republican budget posturing - Though it will be interesting to pick the bones out of how much a Syria strike will assuage Republican gun toters and arms manufacturers towards a less confrontational budget debate.

The main topic of interest is the steepness of yield curves and how much the tsunami of bond sales can percolate through linear interpolation into the territory of forward guidance. It's a big battle that's being waged in the rates markets across the world. The bond vigilantes vs the forward guiders. To clarify things a bit, let's add a bit more detail to our canvas. In the red shirts in the long end corner , the sellers of bonds, the economy bulls, the Larry Summers cheerleaders who are so trigger happy and hate bonds so much, they just keep on selling. In the blue shirts in the short end corner the cowering Central Banks Forward Guiders, bruised, battered, but still trying to keep the risk premia down in their short ends.

What is more the CBers in exiting QE have basically walked over to the vigilantes and handed them a script of every punch they plan to make. whilst also leaving themselves with nothing new to throw at them apart from a Muhammad Ali type of slating "I am the greatest, I am going to nail you" or rather as Basci said "Believe us and you will win" - which they are hoping will lead the vigilantes taking them at their word and throwing in the towel rather than howls of laughter and a pummelling. Unfortunately the promise of forward guidance is binary, rather like that old Russian saying on pregnancy, you either forward guide .. or you don't. You can't have a bit of forward guidance maybe, because promising forward guidance gets everyone leveraged and beautifully long of the short end but as soon as they realize that you maybe didn't really mean it that way they panic and you have a mad rush for the exit leaving a mess.

The problem is that in doing so the CB'ers are effectively committing to control the unknown and for that reason we can't have confidence in them. And as soon as we don't have confidence in them they are then trying to control the unknown, which leads to a further collapse in confidence.

So CB'ers - We can't believe you whilst you promise us short term rates to stay low in an uncertain future and still have us believe that you are adaptive to future conditions enough to achieve your mandates.

It's a bit like your teenagers promising to do what you ask for the next year in return for a ride to the cinema and we know what the chances of that are.


Anonymous said...

Hope that you can move on to the new position quickly. Best regards.

Leftback said...

All the best Guv'nor.

Mr Shorty, Cold Steel. You know the rest.

Anonymous said...

Good luck! Sorry to hear of all the disruption and upset. This is one of my favorite spots to lurk, both for the TMM'ers and the commenters. Very educational for a Retail Johnny like me.

- Whammer

Anonymous said...

Good luck, mates. Hope you find a better place very quickly.

abee crombie said...

best regards, sorry to hear about the death in the fam. I am missing the contributions from Nemo and CPMPPI but work is work. Glad you came back Pol, dont let this blog die ;-)

While I have been watching the ticker recently, cant say much really different than you. We are starting to really consider a nice position in EM bonds. 3% yield + 400bps spread for 7-9 years. Real money was chasing themselves to jump into everything obsceure 6months ago, and now its there for the taking, yet it seems no one is biting.

Eco is good but I cant see the fed letting 10yr go above 4% before it gets really worried. If that is your worse case, and assumng EM doesnt all blow up, 7% is looking pretty appealing now.

Hit and run in a bond bear, I say

abee crombie said...

US investors pile into European equities - FT

shares outstanding of VGK, vanguard europe ETF, going ballistic as HF pile in.

seems the concensus trade right now, along with China is/has bottomed. SHCOMP nice break.

Rotation out of US and into rest of world.

VandalsStoleMyHandle said...

Thanks, guys.

I don't pretend to understand why highly-skilled, busy, well-adjusted people put so much effort into blogging, but it gives me a warm, fuzzy feeling along with a solid chunk of food for thought.

You guys are owed some good karma.

All the best,

Anonymous said...

Just another long time lurker here sending you all good tidings re your current work and family situation and an overabundance of thanks for a humorous, insightful, and thoroughly engaging blog.

It is just excellent all around, and your efforts are greatly appreciated.

Best to you all -

Anonymous said...

Just another long time lurker here sending you all good tidings re your current work and family situation and an overabundance of thanks for a humorous, insightful, and thoroughly engaging blog.

It is just excellent all around, and your efforts are greatly appreciated.

Best to you all -

Anonymous said...

Comments on this blog are the best in the blogosphere, bar none!

Where is C?

Nico G said...

all the best muchachos

Anonymous said...

All the best, very engaging blog.

CV said...

Chaps, sorry to hear about this. Here is to bouncing back swiftly and stronger from current adversity.

The TMM blog will not die I am sure. We can deal with hiatuses too mind, LB et al are here to keep us engaged.


Anonymous said...

Seeing the cobwebs accumulating here the past couple weeks, I had a feeling something had gone wrong. Here's wishing TMM the best.


Anonymous said...

Long time lurker and occasional commenter number xxxx wishing all well for TMM team and appreciating for all outside the box thinking. The blog really broadens ways of thinking and brings interesting aspects and occasionally lifts one from the wood to see the forest of macro world and how slowly long term themes really change. Yet these themes are the most important ones, and materializing exactly how predicted some months back. However things turn out, all the best and thank you's for the gang.

It seems the yield mean reversion theory isn't as strong as previously one might have thought. US economy printing better numbers (a more mature position within the cycle?) and EZ just began from the bottom. Nevertheless EM have bounced nicely, especially the names beginning with "Ind", which were kicked the hardest. Turkey another bright star certainly because near proximity of Syria, where conflict expansion seems to be absent of materializing after all.

Friends of Syria (namely Russia and China) seem to have neatly outmaneuvered Obama to pursuing a "diplomatic" solution. I do think it is now much more unlikely of a couple of missiles flying over Damascus and that market spooker has been swept under the mattress for now... perhaps for good. Perhaps now it's just a question for Obama to make a tactical withdraw with as little attrition to prestige as possible and make it seem a "win" in domestic policy. But have to give credit for Bama, without threats these chemicals would've never been put out of action.

QE continuity? A mixed bag here. Headline unemployment hovering just above "threshold" 7%, GDP growth has been lagging expectations and inflation is well under the 2% goal. However labour participating has been dropping which is offsetting the improvement in UE.

Nic said...

Sending you some great job vibes :)

Anonymous said...


A long time lurker here. All the best. You guys have been great and we really appreciate the blog. Hope things fall in the right place for you. But focus first on that; we kids will be fine.

Polemic said...

Thanks folks for all the very kind support, it really does help.

Anon 1.37 - is that link a sign off from you Bill? if so thank you indeed. If it was a ref to your UE point then it was interesting but hte Calculated riski post that caught my eye was this one and the other refs to slow/dead small bizz hirings. Ok it can be seen as something to undermine the the overall data but to me it's another pointer towards the stretches we have seen appear over the crisis, just as we are seeing between rich and poor we are seeing it mirrored in business. The big are getting bigger and the small are still suffering. I'm pretty sure that all that regulation designed to help the small guy is actually making it harder for him to efficiently compete against mr economy of scale.

eg Barriers to entry in the banking world are now huge just when we want to see more competition leaving the way clear for big banks to spawn without any innovation ( TSB mitosis from Lloyds)>

but that's another topic,

lets get back to melt up day now that Obama has been told to calm down and chill " we've got it sorted" by the big boys in the East. They have done a splendid job of making him look like a bit of a "numpty".

Numpty - Scottish usage:
- Someone who (sometimes unwittingly) by speech or action demonstrates a lack of knowledge or misconception of a particular subject or situation to the amusement of others.

Anonymous said...

Nice to have you back, sorry to hear reasons for absence. Pain trade remains up in European equities, since the much vaunted 'wall of cash', despite the FT's protestations, has not materialised this year. So the big boys haven't got enough of it, and it will now skip and dance ahead of their grasping portfolios until they catch it. We all know what happens after that, only question is when is the selloff, Sep or Oct ?

Anonymous said...

Sorry to hear about all this Pol.
To be honest, your commitment to this has always blown our mind, so hopefully we can all offer some comfort back, and keep you going, here and elsewhere in life.

Anonymous said...

Thanks Pol... wasn't the author, was just scavenging pieces and bits of other opinions on Qe taper timetable with the Calculatedrisk-blog hitting the pathway. :)

I think the real impact of a small taper would be next to nothing, when you compare that in 2012 the US debt increased an average $108bln/month. So take out $10bln/month, nobody would, nor even should notice that.

But it seems that even marginal decreasing in the treasury buying has something of a very great symbolic meaning for the market as proved earlier this year by its reaction when there was a first mention/thought of it. The god of economy will get very angry and punish us all should anyone dare touching it. It's like a drug: even a thought of gaining a smaller portion will make you very sick, even though it will not really matter. Even makes you feel that it is just an over-exaggerated excuse for some other reason to begin a potential decline in equity prices.

How about that aggregated TTM-earning growth going negative, anyone? Growing multiples should be linked with growing earnings, not declining imho.

Leftback said...

Anon @ 6.36:

Yea, verily. Preaching to the converted, sir.

Anonymous said...


After standing down the missile strike, Obama is now threatening Basher Al-Asshat with "The Comfy Chair".

Anonymous said...

C Says

Now if that was an Industry wide policy we may be in for interesting times and I for one would be very selective about where I was going to go short. Moreover where one of these guys lead it's rare not to see others follow one likes to miss out do they.
I certainly did not waste time the other week nullifying my slight short bias in equities.

M antennae are getting a distinct vibration that ;
a) The Fed is going to be a raspberry
b) Credit expansion is going to start going up.
c) Just keep getting some long equity and get used to worrying about it ,because collectively the banks appear to me to be geared to keeping the party going.

I'm officially changing my name to Mean Reversion I love it so much.

Leftback said...

Housing starts and the Tiny Tapir are both due up next Wednesday. Until then, sure, we can have another few days of this bull market....

Here is a video preview of next week's FOMC statement:

Tiny Taper

As you can see, the taper will be small, but perfectly formed, as the actress said to the Bishop.

Leftback said...

Curious readers will of course want to know the origin of the Tiny Taper....

Where Do Tiny Tapirs Come From?

It's a full service blog, here. We look forward to that one getting picked up by FT Alphaville etc....

Anonymous said...

@LB, I thought this was a family blog!

This can't be good for housing starts...

Anonymous said...

C Says
My personal like of the day goes to be nameless gentleman who posted this.
Shock horror ;"When I look into the details, it turns out Americans are indeed buying cars from automakers -- but on borrowed money. "

Now I don't know about you ,but just from memory I recall it's always been the case in my living memory that most people bought big ticket stuff by securing it against their future income otherwise known has borrowed money.
Frankly, if this is any kind of signifier of the level of fundamental concern out there then I offer an open door invitation to my couch because it is certainly needed. Indeed I am thinking of some new research work here along the lines of how traumatic stress to 'shocking events' may be widely found outside of the battlefields.

Leftback said...

Yes the XHB is up again today but closing in on the top of its downward sloping trading channel. We have stayed away from any shorting this week, but as the VIX descends and complacency rules we will be drawn to that vehicle once more. Fundamentals apart, since we are essentially long MORT and AGG, it makes sense to hedge by shorting another rate-sensitive instrument.

Did the government basically come out and say "our initial claims numbers are all bollocks and you should ignore them"? It really is getting more and more like China every day. Does someone get on the phone and say "we'd like another 170k NFP this month please, then throw in a surprise 220k to toast the shorts the month after. Got that? Oh and we'll have a 2.2% GDP, to go, please. Say what? No, of course it doesn't matter what the real numbers are."

Joking apart, it might be advantageous to look at the non-government sources of data like Gallup.

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Leftback said...

The Tiny Tentative Taper was aborted.... RIP

LOL bond shorts.

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