"Do not trade on headlines"

Monday was a perfect example of why Macro Man likes to keep a "DO NOT TRADE ON HEADLINES" sign near his desk.   Having a visible reminder of this precept provides a powerful behavioural anchor to act in the desired manner, and desirable it is for his particular brand of macro.   After all, if the ISM can only properly release their monthly survey on the third try, what's the point of reacting every time a red headline hits the Bloomberg screen?   In any event, the Algo-bots can obviously react more rapidly than any human, so by trading on a headline you're just giving them a chance to take profits quickly.   No thanks.

It's only been a few days, but the Shift-F9 button on Macro Man's keyboard is already looking a bit worn.  It's been 35 trading days since the last 1% decline in the SPX, the longest streak since last August.  (If you're curious, that streak ended at 36.)

European CPIs duly underperformed consensus expectations on aggregate, let by a rather stunning miss in Germany (0.6% vs 1.0% expected.)  Strangely, Macro Man somehow doesn't think that the streets of Frankfurt will be lined with protestors this week, calling for the assembled ECB governing council tgo deliver badly-needed monetary easing.  After all, as Draghi himself pointed out a few months ago, low CPI means that Hansel and Gretel can buy more stuff with their hard-earned Deutsche marks euros!

That EUR/USD only retreated back to Thursday's closing levels would appear to suggest that the position is widely held, if perhaps not too deeply.  Given the performance gap at most macro shops in 2014, it's hard to see any position being held too deeply until the end of the summer.  Sod's law, of course, is that the long-awaited Abenomics: Part III trade will materialize while the market is in its current stasis; the much-ballyhooed GPIF asset allocation announcement is starting to get more and more press, a reliable sign of a building narrative.  An interesting question is how high USD/JPY can go before the market start to gets sucked in to forced buying.  Certainly by 104, though one would have to think that if we're >103 after payrolls then at least some demand would materialize.

Elsewhere, Macro Man ran some numbers today to check on a p.a. bet that he has on with a chap we'll call the Pocket Rocket, an equity derivs broker.   The gist of the bet was that Macro Man took the "over" on a 12% realized vol threshold for the SPX in 2014, with a steak dinner at, er........stake.  In late January it felt like the PR was almost ready to pay up early (was a sushi lunch an acceptable get-out price?), but he stuck to his guns.  As of Monday's close, the ytd realized vol has been 11.4%.

Frankly, given the relentless nature of the Shift-F9 rally over the last six weeks or so, Macro Man was gratified to see the number still so close to the bogey, because it certainly doesn't feel like the market can get much less volatile than it has been the last couple of weeks.

In any event, he thought it would be fun to run  a comparative analysis, looking at the calendar year realized vols since 1970.   For a little added spice, he highlighted the years in which a new chairman of the FOMC was appointed.    The results are set out in the chart below.

Somewhat contrary to expectations, years featuring new Fed chiefs tend to have lower-than-average SPX volatilities....unless the Fed Chairman's initials are "A.G.", of course.  Probably unsurprisingly, low-vol periods tend to cluster.  It it curious to note, however, that despite the most vol-suppressing monetary policy regime that we've ever seen, the last three years of realized SPX vol have actually been higher than those that culminated with Bernanke's appointment in 2006....and gee, didn't that end well?

The difference, of course, is that Bernanke ended a tightening regime, whereas Yellen (oh please, any deity that will listen!) will presumably start one over the next 12-18 months.   Depending on your perspective, that could either mean a further few years of low before policy "bites", or a rapid uptick in vol once a tightening turd gets thrown into the punchbowl.  Either way, the tightening headline, when it comes, will be one to anticipate rather than react to.