Ah, Putin!

When Macro Man was in the infancy of his professional life, less than a year out of university, he was sent to Paris to begin his trading career on the Matif futures exchange.   This assignment, the direct result of a self-declared "proficiency in French" (based on an accumulated seven years of classroom study), proved to be a learning experience in a number of ways.   One of the more obvious eye-openers was that the schoolhouse French of his student days was rarely to be found on the floor of the exchange, replaced instead with the argot of the trading pits and of Paris itself.   One of the first and most useful words he learned was "putain", a catch all that conveyed a variety of meanings (all frightfully impolite, mind you) depending on the context.   Rare indeed was the day when he did not hear a French broker yell (or at least mutter) "ah, putain!" in frustration.  

The resemblance to the surname of Russia's president has always struck him as an apt one, never more so than during the recent annexation of Crimea.   And so, with Ukraine once again in the headlines, Macro Man can imagine more than a few nervous equity longs muttering the imprecation "Ah, Putin!", thereby killing two linguistic birds with one stone.

(As an aside, in the wake of Donetsk's demand to flee Ukraine for Russia, should we now be prepared for any locality with a few Russians to make the same request?   Will Roman Abramovich, irked at Chelsea's slide behind Man City and Liverpool, declare Stamford Bridge to be part of the Harrods oblast?)

In any event, equities are starting to look a little more sickly than a simple rotation might suggest.   Indeed, for much of the day yesterday, the biotech names actually traded quite strongly (even as the short-base EM complex continued to rip.)  Although this space laid out the case for an equity downtrade a few weeks ago, Macro Man had thought that the strong April seasonality would provide a tailwind for another couple of weeks.



Perhaps it still might; US cash equities closed well off their lows, there's plenty of talk (or is that wishcasting?) of a "turnaround Tuesday", and a dovish set of Fed minutes, if forthcoming, could be the tonic that lifts the spirits of all asset classes.   Nevertheless, it's safe to say that stocks are not, as yet, conforming to prior expectation, and the ominous change in the calendar to May looms ever closer.

What's instructive to note is that correlations are ticking a bit higher, though not yet as much as they did in January.   Indeed, the implied correlation within the S&P 500 is still quite low by the standards of recent history.   Of course, one could take that one of two ways:  either that the recent sell-off is yet another small drop in the bucket of a strong secular bull, or that index hedges are currently quite cheap and that you should snap 'em up while you still can.  As Macro Man tends to favour the view that the end of QE and eventual onset of a tightening cycle should engender a secular uptick in cross-asset volatility, he naturally is predisposed to the latter interpretation.



One might consider whether Europe offers more bang for the hedging buck.  Over the last week the Eurostoxx has broken cleanly through its Jan and Feb highs, spurred on no doubt by the "comforting" words of Super Mario and the rumoured modelling of a Eurozone QE by Dr. Evil.  The longer the ECB goes on with doing nothing, however, the more likely it appears that someone or something will call their bluff.

Vol is still quite low on an absolute and relative basis, so there'd appear to be worse trades you could do than snaffling some May 3000 puts for less than a percent of face.




And hey...in the unhappy event that Russia makes another land grab, they might even save you from muttering another "Putin!" or two.

*Apologies for the recent RSS snafus.   Everything should now be back in working order*