Ten Things I Think I Think

With apologies to Sports Illustrated's  Peter King, here are ten things I think I think:

1) Given the state of the world and the much-discussed potential minefields out there, Macro Man is not naturally predisposed to be particularly bullish of emerging markets.   However, he notes that after a long period of redemptions, the asset class saw solid inflows last week- EM bonds saw their second highest weekly inflows on record, according to BAML.  Moreover, the EEM chart is looking decidedly perky; is that an inverted H&S that's just broken?  The only technical cause for concern is that the RSI has made an interim lower high; still, it's looking pretty decent,. if only for a short term punt.

2) The EEM performance is all the more impressive given the goings-on in Turkey.   That the regime has suspended or sacked tens of thousands of educators is redolent of the proscriptions against the bourgeoisie following the Bolshevik revolution.  One can only hope that the analog falls apart from here.

3) While it's rarely a great idea to get bearish of something after its moved from multiyear highs to nearly multiyear lows in a few months, TRY/ZAR might be the exception.   For years it has priced a greater degree of political and regime risk in South Africa than in Turkey, but that appears to have changed rather quickly,  Is there any reason it shouldn't test the 2011 lows below 4.00?

4)  That didn't take long for the new government to backslide and put off Article 50 til next year, did it?  Could it be that they've discovered that when some 47% of your exports go to the EU, and only 16% of theirs go to you, that you may not actually have the upper hand?

5) Oh irony of ironies.  Even as rates everywhere have collapsed over the past few weeks, effective Fed funds have actually been drifting higher.  The sad thing is that the pace of this gentle drift (3 bps over the last 6 weeks) is actually higher than what's priced into the market over the next year.

6) Is someone asleep at the wheel, a mere pause, or was enough enough?  After falling 3% in a straight line since late may, the RMB has recovered half a percent over the last week or so.   Tellingly, USD/CNY has been keeping steady as the dollar has recovered elsewhere, which is a clear change in behaviour.   6.70 was a sensitive level in USD/CNH earlier in the year, so perhaps it is for the fixing as well.   This one's worth keeping an eye on....

7) Doesn't crude in the mid-high 40's kind of suit everyone?  It's high enough that most current producers can kind of turn a profit (if not fiscal balance), but it's low enough that it shouldn't kill the global economy through a tax-type effect.

8) Monday of last week saw the largest daily flow into high yield funds on record.   If that's not a sign of capitulation, Macro Man isn't sure what is.

9) Reader "Maelstrom" made an astute observation in the comments section yesterday.   While the level of the spot VIX is uncomfortably low, the curve is still very steep...which usually makes it profitable to short and roll down...or at the very least, avoid going long because of the brutal twin darts of theta and rolldown (on actual option positions, not VIX futures positions.)  A curve that's low and flat is the one you want to go long...

10) Volkswagen has managed to alienate a lifelong fan enough over the last two weeks that Macro Man cannot envisage ever buying another one again.  The final straw was sticking your author with a bill for storing the car over the weekend because the buyer didn't collect it until Monday, despite the fact that a) the reason the buyer couldn't collect it on Friday is that the dealership  didn't respond to phone calls asking for confirmation that the car could be released. b) that the car was only accessible for 4 hours over the entire weekend, and c) someone at the dealer told your author that keeping it there until Monday would not incur any charges.

Although the government would never let them go bust, Macro Man wouldn't shed a tear if they did.   In the meantime, roll on more ludicrous fines!