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.
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