Public Enemy as financial commentators

"Base?!?!?!  How low can you go?
Death row!  What a brother know?"

     - Public Enemy, "Bring the Noise"  (well, kind of)

Little did Public Enemy know when they recorded the opening lines to 1988's incendiary "Bring the Noise" that they would be providing trenchant financial commentary nearly 30 years later.  Imagine the first line being rapped by Jim Mora, and it seems an apt reaction to anyone trying to call a bottom in any of a myriad of financial assets.

Macro Man touched upon oil yesterday, and whatever his merits as a commentator may be, at least he didn't ring the bell for the bottom.  However, there are a number of other markets in freefall that merit comment.  We all know that Greece is a basket case and has been for years.   While there have obviously been tactical buying opportunities along the way, Macro Man has studiously ignored them on the theory that a turdburger doesn't magically turn into a steak sandwich, so why bother taking a bite?

Still, even he was surprised when he saw a chart of the Greek bank index yesterday....

Gotta say, that's a very Lehman/WAMU/Fannie 'n' Fredie looking chart.   As noted in the comments section yesterday, the situation with European banks generally doesn't look much better, as the chart of the SX7E indicates:

What's interesting (or depressing, depending on how long you retained your bullishness, if any) is that the banking index at least looked like it was trying to form a base in the aftermath of the August/September swoon....only to get kicked in the groin with an iron-tipped boot by the ECB in December (indicated by the arrow.)   More than 20% later, the rest, as they say, is history.  Incidentally, the downside of the Eurostoxx dividend trade highlighted the other week is that for maturities out more than a couple of years, you're basically just trading the banking index:

Macro Man would agree that BTPs look like an attractive short, especially spread against something less stinky (or at least less threatened by contingent liabilities from large banks with dodgy balance sheets.)   Then again, Macro Man has found it insane that 10 year Italy has traded well through the US for a long time now, thus calling Keynes' famous maxim to mind.  Still, if there were ever a catalyst for something like UST vs BTPs to work, an equity meltdown led by European financials would be pretty high on the list.

Of course, the ECB meets on Thursday, and after a tumultuous six weeks or so since their last pow-wow it will be curious to see how much has changed.  Obviously the sharp decline in both oil and risk assets (at least in terms of potential impact on banks' ability to lend) has implications for the ECB's forecast profile though it seems difficult to believe that they would adjust policy again so soon after the last cut.  Then again, the last policy move was widely seen as a derisory gesture; if the ECB were to deliver the rest of what was expected last month, could that help catalyze a bottom?  Very possibly, particularly given that it would be largely unexpected.

Speaking of central bank expectations, there will be some fireworks in Canada tomorrow, where the BOC announces policy tomorrow and markets are perched on a knife edge, pricing just over a 50% probability of an easing.   It seems close to tautological to suggest that the CAD will trade according to the decision, and for sure the knee jerk reaction will clearly depend on the immediate outcome of the meeting.   As always, however, the commentary will provide a more forward-looking window, and Macro Man would not be surprised to see a lot of jiggery-pokery in the event of a dovish hold, for example.  He has been somewhat surprised to hear anecdotal evidence of punters being out of court from fading USD/CAD too early, particularly given what's going on with oil and BOC expectations.  While the theory perhaps is that all the bad news is in the price, it does highlight the peril of fading price action just because you've never seen the number before (or haven't seen it in more than a decade), particularly in the absence of a well-defined (and relatively close) risk parameter.

Finally, any round-up of melting asset prices and hapless economic management would be amiss to omit sterling and the Most Overpriced Man in the World, Mark Carney.  Carney's latest attempt at forward-guidance-that-isn't-really-forward-guidance-after-he's-proven-wrong-yet-again has of course pooh-poohed the need for any rate rises and the economy's ability to withstand them.   Why lift a finger when you can get paid the same for doing nowt?

Under Carney's "stewardship" cable has now plumbed new lows.  In fact, Macro Man is kicking himself for not being on top of this earlier, as US/UK rate spreads started moving decisively against sterling around Thanksgiving, well in advance of cable's recent shellacking.  (Interestingly, the 2y spread, suggests that sterling is now overshooting to the downside.)

Macro Man does wonder, however, if Carney has an ulterior motive.   He has now lived in the UK long enough to understand the calendar of school holidays, and he is no doubt observant enough (insert joke here) to note that much of the country scarpers off to the ski slopes during the February half-term break.    It raises the question of whether the Governor has devised a cunning plan.

If we observe trends in sterling since the last February half-term break, we can see that thanks to Carney's litany of ham-handed commentary, sterling has weakened against the currencies of every major ski area.....except one.  No, there's one popular ski region where Brits need not take out a second mortgage merely to enjoy a slope-side Spaghetti Bolognese, and there's no prerequisite to sign your soul over to Satan just to afford that second apres-ski pint of Stella.

Yep, you can still afford to ski in....Canada!  Perhaps Carney, having overseen Canada's descent into economic mediocrity, has actually been sent to the UK as an agent provocateur with a mandate to so thoroughly trash Britain's purchasing power that Britons are forced to ski in Canada, thus providing badly-needed tourist revenues and throwing a life-line to the economy of his homeland.   Far-fetched, perhaps...but then again no more so than some of Carney's behaviour over the last few years...

Macro Man will summarize the results of yesterday's survey later today.