You wonder why macro isn't making any money?

Short sterling pricing before UK Mansion House evening, June 12th:


The money quote from Mark Carney's speech:

"This has implications for the timing, pace and degree of Bank Rate increases....It could happen sooner than markets expect."



The trend in economic subsequent data has been broadly neutral:



And yet the BOE releases in inflation report today that, accompanied by Carney's testimony, has been seen as overwhelmingly dovish.   As a result, current pricing of short sterling is as follows:





If you're paying attention, you may notice that this now prices lower rates and less near-term tightening than was the case when Carney issued his warning two months ago:




Remember, kids:  Carney folk are frauds and their games are rigged against you!

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amplitudeinthehouse
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August 13, 2014 at 4:19 PM ×

Thanks for throwing me into that movie yesterday, Macro Man.
Thoroughly enjoyed it, as for your synopsis of Central Bankers activities ,well we did say one certain Central Banker was proficient at utilizing the Chinese burn to the synapses, so why not the rest of them follow course.
If the rhetoric tool is there to be used , use it.
But as we move closer and closer to the end of the Business cycle we are seeing which segments of the market are riding the rhetoric wave and which are implementing there own reason and judgement and when this becomes ever more pronounced this shall be the time to choose what side of the market your going to be on in size..
We do think the last trade we put on, that being a USD/AUS double no touch barrier option is more likely to fend off local bidders till expiry..of course if I could have divulged the research desks info in relation to previous trades that seemed to have just sucked into a black hole, than locals bidders may have been a little more reluctant to hit my offers..now with repetition, market players must surely know that in the long run it may be best to let this trade go through, for everyone.

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Anonymous
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August 13, 2014 at 4:50 PM ×

MM: And you're surprised why? Look, if western govts increase rates they will be bankrupt. Period. So guess what? They won;t increase rates. Fck what the bond mkt tells you... that's all manipulated b*llsh*t. Guys this isn't rocket science. If you want to go long something, but US stocks. They will take post new all-time highs next week.

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Anonymous
admin
August 13, 2014 at 4:50 PM ×

above: but=buy

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Macro Man
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August 13, 2014 at 5:18 PM ×

I reject the view, taken as axiomatic in some quarters, that Anglo-Saxon economies cannot raise interest rates without causing the world to end. Interest rates are not the reason that wage growth has been stagnant, and there is zero empirical evidence that ZIRP does anything to ameliorate the problem.

Indeed, the only empirical evidence is that it does NOT work (ie Japan.)

Nowhere did I say I was surprised by Carney's volte-face; indeed, earlier in the week I highlighted his penchant for moving the goal posts.

While I would concur that the time is probably not quite ripe for the 'Big Kahuna" sell-off, I also reject the idea that one should be a buyer of stocks/high yield/etc in perpetuity.

Some things don't change, and one of them is that a persistent mispricing/misallocation of capital will eventually bite you in the ass.

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abee crombie
admin
August 13, 2014 at 5:40 PM ×

and you guys thought merve the swerve was bad. Carney did the same thing soooo many times at BoC. Gotta give him credit though, he still commands respect and can move markets. Just not sure who besides HFT/CTA really wants to trade short sterling anymore.

http://www.nfib.com/Portals/0/PDF/sbet/sbet201408.pdf

NFIB small business jobs hard to fill near what level? 2005,1995. But yes Yellen, there is still too much slack in the economy to raise rates from 0.15%!

I'm thinking Spoo's need to re-test the high before going lower in the fall.

MM the Fed is so worried about repeating the 1931 or 1939 experience that they are going out of their way to remain accommodatve. They'd rather be too late (obviously). But at some point their tone will change and the market will wake up, especially bonds. As for stocks, can you imagine what would happen if the world economy actually starts to grow strong.

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Leftback
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August 13, 2014 at 5:58 PM ×

A quick note to anonymous ├╝ber-bulls and to our dear pal, Mr Polemic. We have been accused of having a perennially bearish view of the US economy. Our answers are four-fold:

1) Demographics, innit, guv? (Boomer cohort).
2) We live in middle income America.
3) Look at the data. No, really, look at it.
4) Don't forget there is a propaganda machine.

Today's little nugget of "recovery" was a retail sales number of (drum roll) 0%. Mortgage applications are way down. Look, it's not that we WANT the US economy to languish through a decade of low growth stagnation punctuated by absurd QE episodes aimed at goosing asset prices. Some things just ARE.

ZIRP is here, and although we agree fully with MM that ZIRP doesn't work, its imminent disappearance is a figment of people's fevered imagination, like the Principle of American Exceptionalism and the Great Presidency of the Visionary Barack Obama.

Accept the world as it is, Grasshopper, and you will live a happier and more profitable (although economically more depressing) existence. The truth is out there....

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Leftback
admin
August 13, 2014 at 6:02 PM ×

Btw, I have not been a persistent critic of President Obama, and have little interest in US politics. But the following must be said. The African-American community will say nothing critical in public, but in private is now disgusted with Obama. His responses to the lynching of Trayvon Martin, the recent killing on Staten Island and this week's events in Missouri have been asinine, at a time when he could have stood tall and demanded justice for all Americans.

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Polemic
admin
August 13, 2014 at 6:11 PM ×

In my eye's Its all to do with wage inflation.

Now here's a thought- We see, certainly in the UK, that a greater proportion of employees are self-employed/freelance, or part of tiny companies. Does this sector get fairly picked up in wage data? I know from personal experience that taking dividends rather than salary is a no brainer so salary/wage data is massively suppressed in the self employed sector.

Oh and LB .. thanks mate. As we say on skiing holidays -- 'see you at the top' !

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Polemic
admin
August 13, 2014 at 6:13 PM ×

and watch that reverse head and shoulders on Spoos that may be about to break up thru neck line . ties in with 1950 resistance on cash

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abee crombie
admin
August 13, 2014 at 8:10 PM ×

LB, you make a good point. Growth in the US economy hasnt really showed up in the numbers yet. But I think slack is much less than some at the Fed think. The Fed has been given the go ahead bc inflation is low and unemployment is high. But what happens when neither of the two are abnormal. Will the Fed get another mandate to target real GDP, productivity? or maybe nominal GDP like some wanted.

Remember how the market moved on 'tapering' talk. well what do you think will happen if Yellen/ Hilsenrath/etc start talking about wage pressure /reduced slack. A giant U-turn, yes of course, but look at the data and its no so far fetched.

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Leftback
admin
August 13, 2014 at 9:23 PM ×

Wotcher, lads.

Look, I think there are all kinds of mistakes one can make in looking at the economy. One mistake is "location bias", where you play what you see. Pol looks at the UK economy around him and says Cor, there ain't half a lot of inflation 'ere, innit? He's right. It's the same when he visits San Francisco.

But the UK is still cruising on an enormous bout of QE and sterling devaluation on the heels of the crisis, plus the fact that the UK (London) housing bubble never really deflated b/c of foreign hot money. In the US it's also a Tale of Two Nations. Silicon Valley is Hot, the Appalachians are Not.

Btw, LB has been long the Spoos this week for a bounce, but is not going to wait around for The Top. It can get icy up there above the tree line, Pol, so we're going to relax and sunbathe at the mid-mountain restaurant for a bit.

Abee, the measurements of "slack" in the labor market are dependent on which segments you look at. There never was any slack in software engineers, but there's plenty of slack in factory workers and other grunt occupations. Again, the vision of the US depends on where you sit, and we can actually see Blue Collar Middle America quite easily from our perch, even though it is located not far from Financial Services America.

Slack is one thing. Wages are another. Pol, the segment of the US population paid in stocks etc. is minuscule and just doesn't register. That's why I obsess over "hours worked" in the jobs report (and so do others). With wages per hour more or less pinned for now, total wages depend on hours, and that measure also hasn't budged. These are the data that matter to us, because wages drive demand. Did we mention that we aren't fans of "trickle down" Supply Side economics? This is why QE doesn't affect wages. It doesn't trickle, and so doesn't stimulate aggregate demand. The bond market is in fact continuing to forecast reduced inflation in the US in the months ahead, all we have to do is listen.

So QE isn't working? It depends on what you think it was intended to do. We would suggest that it was never intended to increase employment or wages, but to protect asset (housing, equities) prices from the scourge of deflation. It has been argued here by MM that QE in fact serves mainly to enrich exactly the same class of Americans who benefitted the most from TARP. Once again, it's crony capitalism at its "best".

Abee, finally, I'm not sure that it is Yellen or Hilsenrath that "move markets" in the end. Once large amounts of Real Money begin to flow in one direction, the market will do whatever it wants to do, and the narrative attached to the fund flows will be irrelevant. As MM has said many times, keep an eye open for the elephants b/c once they start running you don't want to be in the way.

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Kenny G
admin
August 13, 2014 at 11:25 PM ×


He is a total fraud. Either he is clueless (entirely possible) or a complete liar. His record of lying in Canada was pretty good. No reason why he'd stop doing it here.

He still hasn't realised that the Uk operates just fine under a high currency regime (they don't sell low value items, but what they do sell is relatively price insensitive. You don't walk into an Aston Martin dealership in HK and moan about the ccy effect on its price!).

Emergency rates for emergency situations. These guys will be totally fuked if they need ammo in the future.

@Anonymous at 4:50pm ... if you want to buy something you are better off buying fixed income. Stocks are in la-la land and don't realise that Russia is still very much on the agenda. Who gives a shit what some Russian Security Advisor says - really they rallied 50 handles on that??!! Not 24 hours earlier they banned all EU (and others) food exports ... for a year!! Mr Putin is settling in just nicely in the full knowledge that winter will be here soon, and that bavaria in December gets awfully fuking cold.... particularly with no heating!

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Anonymous
admin
August 13, 2014 at 11:56 PM ×

I am anonymous 4:50 (from above). I appreciate all your thoughtful comments, but I think several of you are wrong. US equity indexes will push higher... this is a BTFD situation. We will easily exceed 2000 on the Sp500 before year-end. CBs aren't just printing money - they are now actively buying equities. Professional investors are blinded by their knowledge of free markets - they fail to realise we no longer have free markets. That's what's different this time.

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Anonymous
admin
August 14, 2014 at 12:34 AM ×

To the extent it's true, why are CB's buying equities? Can we all at least agree that there is no disagreement on what "buying equities" does (or in this case does NOT do) to real wages and AD?

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Anonymous
admin
August 14, 2014 at 1:04 AM ×

@LB, there is at least one other reason to use QE to prop up asset prices, and you alluded to it in your point about demographics. Many of us baby boomers don't have pensions, instead we have our 401(K) plans littered with our "buy and hold" strategic investments in CSCO and SUNW and socks.com that we made in 1998, and our WAMU and Countrywide stock from 2006. We bought a bigger house than we needed in 2003, and our home equity lines allowed us to heat our bathroom floors and put marble and granite everywhere. We're coming to the realization, if we still have jobs, that we can't work forever, and we basically have no way to retire except by selling our houses to some young fools. Meanwhile we are all holding on to those houses as we wait to get back above water, and this time we will be the smart ones and sell at the peak, unlike all the other poor dumb bastard baby boomers, who will get caught in the stampede for the housing exits.

Shorter -- we're about to have a whole crapload of retired people with no money if we don't watch out, even people who are comparatively well-off (top 30%, say).

- Whammer

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Anonymous
admin
August 14, 2014 at 8:02 AM ×

C Says,
LB,
Double bow from the waist.

Anon 4.51,
Sounds fine except for the facts. Equity buying by retail has been in decline well back into the 90's. It has never recovered so baby boomers are not loaded up on equities. If anything they have bought fixed income in increasing amounts.
As for 'smart one's , wishful thinking. Inter-Generational transfers will happen and the skew will benefit the upcoming 20-40 year olds simply because wealth eventually does trickle the family tree. Think about it.


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Anonymous
admin
August 14, 2014 at 9:15 AM ×

MM said: "I reject the view, taken as axiomatic in some quarters, that Anglo-Saxon economies cannot raise interest rates without causing the world to end."

In theory I agree with you but evidence drawn from real behaviour (actions, not declarations) says the opposite.

They bark a lot to keep their credibility intact but their actions?

One day they WILL raise rates. saying when... more difficult.

ciao f

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Anonymous
admin
August 14, 2014 at 12:29 PM ×

"The true market pricing of the probability of a 25bp rate hike by Dec-14 prior to Mansion House was c.40% but Miles’ saw it as 10% which is consistent with using unadjusted SONIA. The chances of SONIA trading back to flat to bank rate by the end of the year is minimal (and not the market expectation, which is closer to a 4-5bps spread) so the BoE’s methodology is naive. Indeed the announcement that the BoE would allow broker dealers and CCPs access to BoE liquidity framework may speed up the drift back to bank rate but this information is already in the market and its pricing of SONIA-bank rate basis."
From a much smarter colleague.

Despite the unpleasantness of mansion house it has been a decent yr in short£ land. Small fades put on this mng which I may regret come GDP tom.
Wages & prod still the central issues - no wage growth no inflation. Ppl seem to forget CB primary mandate is inf not growth.
Cheers MM,
JL

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Macro Man
admin
August 14, 2014 at 12:52 PM ×

Among those people we can presumably include the Old Lady herself, given the inflationary track record of the last 5 years. This is the problem with modern central banking. They start with the conclusion (unched rates at ZIRP) and then cherry-pick increasingly contorted and inconsistent narratives to justify their stance while being cheered on by the buy and hold crowd.

The counterfactual ("Have you got ANY IDEA what rate hikes would do to housing???") is then held over dissenters' heads like the sword of Damocles.

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Nico G
admin
August 14, 2014 at 1:58 PM ×

watch decreasing corporate buy backs - they've been the main force pushing equity higher, and are decreasing at present

folks that think they could have 30% upside in 2013 AND keep H1 2014 gains by end of year are nowhere near reasonable

if i were long i would lock profits here - Q4 will be one hard bitch

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abee crombie
admin
August 14, 2014 at 2:31 PM ×

LB, I respectfully disagree. There are lots of places in 'Blue Collar' america where slack is low, just try to find skilled oil field workers in any of the shale plays. Are there also places where it is high, for sure, but at the MARGIN (and this is what always counts for markets) slack, overall is decreasing

With respect to Yellen, I think the market is way too complacent assuming she is a dove. If she or stan fischer start changing their tune about slack, that will cause the stampede that 'real' money gets caught up in. Real money has been looking for an excuse for higher rates for a long time

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Anonymous
admin
August 14, 2014 at 11:25 PM ×

'Kenny G said...
He is a total fraud. Either he is clueless (entirely possible) or a complete liar. His record of lying in Canada was pretty good. No reason why he'd stop doing it here'...

Exactly my thoughts and basically what I wrote here when Carney when to England from the colony:-)

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From Canada with dove
admin
August 15, 2014 at 2:05 AM ×

I feel sorry for all of those folks who may have sold their homes listening to Carney who kept on promising higher rates when he had no intention of raising them..should have listened to LB instead!

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Anonymous
admin
August 15, 2014 at 6:44 AM ×

C Says
Carney "liar". Well that depends on what you think he is trying to achieve when he does open his mouth. If you think it transparency then the "liar" label would be understandable.

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Anonymous
admin
August 15, 2014 at 7:11 AM ×

Haha, C, you are quite diplomatic :-) He is only a liar when his lips are moving...

- Whammer

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Polemic
admin
August 15, 2014 at 7:22 AM ×

mr LB.. this uberbull has just flattened out excesses bought on that dip. I was a sceptic of Ukrainian Convoy panic but with it sitting there and personnel carriers going in ahead i just think that something smelly is possible in the next 24hrs..

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Anonymous
admin
August 15, 2014 at 9:11 AM ×

C Says
Actually Whammer I wasn't trying to be diplomatic . I actually think that a lot of people misunderstand the role of Central banker speak. Overtly ,it's about transparency ,but implicitly it's about achieving their goals and if latter means taking the market listeners in opposing directions from time to time then I get it. I also get why the listeners might take that to be lying as opposed to goal resolution. The two are not mutually incompatible.

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Anonymous
admin
August 15, 2014 at 9:14 AM ×

C Says
Pol , I was thinking something similar. I don't think the guys in the armour are on their way to the beach for a little sunbathing. Looks to me like running interference for quarter back does it not? In other words the aid convoy is coming in whether you agree to it ,or not.

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Anonymous
admin
August 15, 2014 at 3:45 PM ×

Fair point C.

Whammer

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Polemic
admin
August 15, 2014 at 3:55 PM ×

C .. I put up a cynical post on my other place this morning

http://polemics-pains.blogspot.co.uk/2014/08/innocent-aid-secured.html

and Bingo .. Looks like the last few minutes have this playing out.

Finland may feel a bit like Chamberlain after Putin's visit

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Anonymous
admin
August 15, 2014 at 4:18 PM ×

0.968% on German 10yr ... German 3yr now negative yield

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Nico G
admin
August 15, 2014 at 4:30 PM ×

so much for reverse SHS 101...

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Polemic
admin
August 15, 2014 at 5:18 PM ×

Yup Nico .. in the league of financial poker hands, WWIII beats a SHS

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Leftback
admin
August 15, 2014 at 5:38 PM ×

Gordon Bennett, exiting US equity long punt yesterday now appears to be inspired, when it was actually just lazy (take Friday off).

To put in perspective what is happening in Eastern Europe, it's a bit like Texas and Oklahoma going to war over the panhandle areas, or Cheshire and Shropshire having a spat over Whitchurch. It simply doesn't make any sense.

It's just hard to believe this is sustainable by the Ukrainians alone, unless of course someone else (COUGH: CIA) is out there as "advisors" and the Black Ops crew are supplying the ammo.

As a result, bad day for the Treasury shorts. Must be a few of those coming out in body bags by now. I suppose this will also help distract the media from covering US police militarization etc...

Expect CNN to leave Ferguson quickly, and to focus on the struggle of the "plucky" Ukrainians as they battle against the might of the "tyrannical" Russian bear, aided and abetted by "freedom-loving" 'Murkins.

Effing hell, this is just such a bad and cheaply made re-run of Vietnam, you'd think they could be more creative than this. Fast forward to the last helicopter flight out of Kiev in about ten years as the puppet government finally falls.

Total 60s re-run this week. Ferguson looking like the inner city riots of the 60s, Ukraine looking like Vietnam, Iraq just a complete shit-show.

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Anonymous
admin
August 18, 2014 at 1:11 AM ×

Minus the sensationalist headline, I found this video pretty darn good for a macro punter. http://www.bloomberg.com/video/stock-markets-difficult-to-predict-since-financial-crisis-PmU8yImVQsSYOkh2px9LAw.html

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