Macro Man Returns

Where to start?

Those were the very first words ever published in this space, and now, some seven and a half years (!) later, Macro Man must confront the same question.  It is an odd coincidence, to say the least, that only a couple of weeks after the last remaining member of TMM packed it in, Macro Man finds himself a free agent and is once again able to pick up his virtual pen to fill the void.

Perhaps the best place to begin, therefore, is with a heartfelt "thank you" to Nemo, cpmppi, and especially Polemic for looking after the place over the past four years.  They kept the structure intact but put their own lick of paint on it, for which Macro Man is genuinely grateful.

Thomas Wolfe once wrote that "you can't go home again", but Macro Man hopes to disprove that theory.  However, even Michael Jordan struggled a bit when he first came out of retirement, so your author hopes readers will indulge him if it takes a few posts to get back into the swing of things.   Having written little but arid investment commentaries since 2010, Macro Man finds that his keyboard is a little rusty, so to speak.

So what to make of the world, or at least the global macro investment landscape?  First, consider a few of the things that have happened since Macro Man last inflicted his thoughts upon the world:

US
* The unemployment has fallen from 9.9% to 6.7%
* The SPX has risen 58%, not including dividends
* The Fed has engaged in QE2....
* ...and Operation Twist....
* ...and QE3....
* ...while providing calendar based guidance....
* ...and threshold based guidance....
* ...and "qualitative guidance"
* 10 year Treasury yields are 0.82% lower despite the loss of AAA rating
* The DXY is 1.6% lower

Europe
* Greece blew up
* The ECB bought sovereign bonds
* Ireland blew up
* Portugal blew up
* Trichet's ECB hiked rates....
* ...twice!
* Italy almost blew up
* Spain almost blew up
* Draghi cut rates...
* ...and delivered 3 year LTROs.....
* but only put a lid on the sovereign crisis with the OMT and a new set of clothes
* For old times' sake, Cyprus blew up
* Draghi cut rates to 0.25%...
* ...despite which EUR/USD has remained consistently stronger than in May 2010
* Mark Carney took the reins of the BOE...
* ..and proved that he was no better at forecasting the unemployment rate than his predecessor was at forecasting inflation...
* ...so after six months decided he didn't want to play with forecasting any more

Japan
* Had a terrible earthquake...
* ...which put the kibosh on nuclear power...
* ...and kept the yen strong...
* ...despite the trade balance moving into deficit for the first time in decades...
* ...which prompted erstwhile post-Koizumi disaster Shizo Abe to run on a platform of economic revitalization...
* ...thus generating the best macro theme of the last 18 months...
*  ...but now faces a challenge via the consumption tax hike

China
* Re-floated the exchange rate
* Spurred a last-gasp commodity boom
* Decided to target credit growth including the shadow banking system
* Changed leadership
* Decided at long last to purge some excess leverage in the system
* Has thrown a spanner in the works of the "can't lose" RMB trade

Other EM
* Moaned about QE2
* Moaned about Operation Twist
* Moaned about QE3
* Moaned about the taper
* Annexed Crimea

Macro Man has no doubt missed plenty in these far-from-exhaustive lists, but if he can distill a few choice morsels from the above, it would be the following:

* The Fed, BOE, and post-Trichet ECB have pursued a policy of pushing interest rates as low as possible and suppressing volatility as much as possible

* Exchange rates have borne only a passing resemblance to perceived fundamentals; if the euro cannot meaningfully sell off during a sovereign debt crisis, when could it?

* Genuine policy activism has delivered market-moving results in Japan

That's not a whole lot of meat on the bone for classic rates/FX macro punters.   Perhaps the most telling symptom of the market environment has been the dead-calm nature of the front end of the US yield curve.  Consider the slope of the 2nd vs the 4th eurodollar contracts, which offers some insight into monetary policy dynamism.    Generally speaking, volatility in this curve is a good environment for fundamentally-driven macro investors such as your author.


Alas, there's been little to do for much of the past three years, and very little carry on offer to compensate for the occasional hiccup.   In other words, it's been something of a global macro alpha-generating Sufferfest.

Indeed, Macro Man has often felt like the chap below, working as hard as he can to spin his wheels and go nowhere.



(n.b.  No Macro Men were harmed in the filming of this video.)

None of this, of course, addresses the brave-new-world regulatory environment, where the authorities appear to view the phrases "more regulations" and "better regulations" as synonymous.  This is a topic worthy of its own screed; suffice to say that while Macro Man is certainly sympathetic to the notion that prior abuses needed to be addressed, the current regime is quite decidedly suboptimal- and likely to get more so.

Fortunately, not everything is doom and gloom.  The ongoing taper and debate over the timing/scale of the Federal Reserve tightening cycle should inject a breath of fresh air into the macro trading environment once the initial dust settles.  One can only hope that in this context, the betawhore long/longer/longest strategy in equities and credit will prove a little more challenging than in the recent era of financial repression.

On a personal level, Macro Man must confess that he dearly missed setting down his thoughts on a daily basis in this space.   The utility of organizing his views and writing them down in a coherent fashion, subject to external scrutiny, only became truly evident once it was no longer available.   Your author, it appears, is one of those chaps who thinks best by expressing himself.  In a moment of weakness, he might also admit that he missed the occasional trip to 221B Baker Street, as well as the occasional rant.   

But now Macro Man's back, for the time being at least, at what promises to be an interesting juncture in financial markets- and more volatile, one hopes, than the financial repression of the last few years.   He looks forward to sketching out his views, and hopes readers will be as assiduous in picking holes in them as they were during his first tour of duty.  If so, it promises to be a fun ride.

To hell with Thomas Wolfe.

It's good to be home.


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23 comments

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FDtriGuy
admin
March 31, 2014 at 9:27 AM ×

This is a market-mover news!!! It's good to rebuild the family!!
Fabio

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Anonymous
admin
March 31, 2014 at 10:56 AM ×

With no disrespect meant to TMM, I must say that it is fantastic to have the original Macro Man back. I have been following your blog since you started it.
So did you change your job again? Is that why you are free to blog once more?

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Anonymous
admin
March 31, 2014 at 1:07 PM ×

WELCOME BACK :)

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Anonymous
admin
March 31, 2014 at 1:16 PM × This comment has been removed by a blog administrator.
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Macro Man
admin
March 31, 2014 at 1:19 PM ×

Well, it looks like Blogger has changed a bit since I was last here. I've gotten a few emailed comments that don't show up on the site. Bizarre. Anyhow, thanks for the welcome....

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Anonymous
admin
March 31, 2014 at 1:25 PM ×

Awesome to have you back Macro Man!!! I have continued to received the MM emails over the years since you had left but must admit I had pretty much stopped reading them as they just didn't measure up to the witty and informative banter of yesteryear (altho I'm sure they did their best and I do truly appreciate their efforts)! I definitely look forward to reading your thoughts again! Rick

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Anonymous
admin
March 31, 2014 at 1:26 PM ×

Is the dead calm at the front of the US yield curve because of "The Fixed Rate Full Allotment Over Night Reverse Repo Facility"?
Its already sucking out more liquidity than the Fed is buying & been nicknamed the 'death star'
Effectively IOER for non banks and seems to be working too

https://www.dropbox.com/s/ms7uem4pv63k5qn/2014-01-08-the-federal-reserves-exit-strategy-preparing-for-rate-hikes-and-restoring-control-over-short-term-interest-rates-barclays.pdf

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abee crombie
admin
March 31, 2014 at 1:29 PM ×

Welcome back MM!

Indeed it would be nice to see another macro theme emerge aside from the beta, JBTFD trade. Single name EM has been interesting but not a playground for most

US labour inflation?

A pop in Chinese house prices (and run on effect in HK, Singapore, Auz, Canada, Brazil)

Nikola Tesla's alien returns to earth http://www.educatinghumanity.com/2011/04/was-nikola-tesla-communicating-with.html

EDZ5 looks set up for an interesting NFP

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Hotairmail
admin
March 31, 2014 at 2:03 PM ×

The Mourinho of the blogosphere is back!

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Hotairmail
admin
March 31, 2014 at 2:12 PM ×

221B Baker Street - you mean the former Head Office of the erstwhile Abbey National, no longer of this manor?

(they used to have a department dedicated to answering letters of help to Sherlock primarily from Chinese who thought he existed)

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Nic
admin
March 31, 2014 at 2:17 PM ×

Not sure why my comment about reverse repo came up as anonymous

Seriously happy you are back
Nic

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Anonymous
admin
March 31, 2014 at 3:48 PM ×

It is a nice surprise. Welcome back!

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Quattro32
admin
March 31, 2014 at 3:51 PM ×

Not sure if I can keep taking this emotional roller coaster... When original MM left I was heartbroken, then Polemic filled his large shoes and did it with his own style and wit, maintaining the superb quality level of this blog. When he bowed out I thought this surely must be it, for nothing this good lasts forever. But the original MM charges to the rescue and once again all is well in the Wonderland. Made my Monday, my wife genuinely thought I was happy to see her this morning...

Glad to have you back, should you leave again I will end up in ER.






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wcw
admin
March 31, 2014 at 3:54 PM ×

Welcome back, old bean.

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Leftback
admin
March 31, 2014 at 5:28 PM ×

Stone the crows. He's back!

The readership and peanut gallery is tickled pink by your most welcome return, guv'nor. Currently very much under the cosh at my personal grindstone, but will be back here in the cheap seats before long.

Welcome back, Macro Maestro!

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March 31, 2014 at 6:58 PM ×

After today's post I now remember why I like you so much.

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CV
admin
March 31, 2014 at 8:53 PM ×

Brilliant! Great news ...

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JohnL
admin
April 1, 2014 at 1:45 AM ×

Well knock me down, just as I brace for a dry spell at my favorite stop on the blogoshere. I'm thrilled to see the repatriation of the impatriate.
Welcome back.
I do hope that Team MM will grace us with their insights from time to time as well, the time I have spend with their prose has always been well invested.
Thank you all.

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Anonymous
admin
April 1, 2014 at 2:08 AM ×

Talk about volatility...

VXX..112.20 January 2, 2013

VXX...42.15 March 31, 2014

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Macro Man
admin
April 1, 2014 at 2:22 AM ×

VXX was over 2000, split adjusted, when Macro Man started his previous job in 2010!

Tells you everything you need to know....

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Nico G
admin
April 1, 2014 at 7:44 AM ×

better suspense than Homeland, fantastic script, Nic perfect as the neurotic blond spy, Polemic becoming a junkie in a Benidorm crackhouse wow never saw that coming

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theta
admin
April 4, 2014 at 10:43 PM ×

Welcome back!

To (try to) answer one of your questions: "if the euro cannot meaningfully sell off during a sovereign debt crisis, when could it?"
Well, why should it sell off? The Eurozone faces huge disinflationary/deflationary pressures as credit keeps contracting. This means fewer euros are available (it's the opposite of "money printing"), hence if anything they should be worth more.

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