Getting Back Into The Swing

Tuesday, August 18, 2009

Macro Man is still getting back into the swing of things, though he can confirm that real-time price action is indeed as noisy as it appeared to be on the South Carolina coast. Yesterday's weakness in risky assets has begotten a bounce thus far today; as has been the case recently, price action appears, on the face of it, to contradict the newsflow somewhat.

Yesterday's limp trade in US equities, for example, ignored further improvements in the Fed's Senior Loan Officer survey, which showed modest reductions in the tightening of credit (epitomized by the C&I survey below) and improved demand for loans in some sectors.

The spin that Macro Man saw was that this was less positive than expected....hence the lack of equity market reaction. Given that, from his perch, this result was probably about the best that could be expected, he can only conclude that, far from bullish equity sentiment being sourced in a flow-of-funds argument, it is actually based on equity punters really drinking the recovery kool-aid.

Anyhow, after yesterday's limp US trade and recent carnage in China, the stage was set for an interesting day's trade in Shanghai. There was certainly fodder for a further sell-off, via a Bloomberg story suggesting that included among the products of the stimulus package is a flourishing trade in copper speculation amongst the country's pig farmers. (Bubble, ccough, bubble.)

But as has been its wont recently, China confounded the Western expectation and put in a bounce today, helping to spur a recovery in risk assets during the European morning. So, too, has the release of data suggesting scope for a bounce in the trajectory of nominal GDP. The German ZEW, flawed as it is, surprised top the upside, with current conditions finally ticking higher.

In the UK, home of QE, meanwhile, CPI printed higher than expectations....again. While it remains below the 2% target, the undershoot is now pretty marginal (0.2%.) Interestingly, core CPI has recovered quite sharply indeed; if one believes that core CPI is an accurate herald of underlying inflation pressures (and to be fair, there is not much evidence that Merve thinks this way.....yet), well, then the BOE will have a rather interesting dilemma confronting it in a few months' time.

But that will likely be a story for another day (if not quarter or even year.) In the meantime, Macro Man expects a rather noisy period where tactical, rather than strategic, trades are likely to maximize his risk-adjusted returns.

Posted by Macro Man at 9:42 AM  


Getting color on today's action in Shanghai - we seemed v oversold in HK before lunch but the force of the rally end of day looks like rumor territory to me. No news of riots/violence at brokerages or anything like that just yet which was the turning point in the mini-tightening in late 06. Basically, they will only let out the air until punters get PO'd at which point the risk on game starts anew.

Nemo Incognito said...
11:09 AM  

i'm with you on copper

retraced right back to the major breakdown level

good looking short play

gold good short as well; everyone is talking about the "pennant" formation

i think we see a wash out before we move quite a bit higher; a break of the USD "pennant" to the south side should do it

Anonymous said...
12:47 PM  

Imagiflation ... hehe

Nic said...
1:46 PM  

the price theory of inflation and therefore the entire premise behind independent central banking has been proved to be a nonsense.

ignoring credit creation is a bad idea...

Anonymous said...
1:47 PM  

How many more months of benign CPI/PPI readings before the Inflationettes give up?

I'm inclined to short some over-owned commodity stocks. FCX?

L/S Equity Guy said...
2:01 PM  

Dollar Bull, Commodity Bear. Tell me exactly how you plan to generate inflation with unemployment at 9.5% and rising...?

leftback said...
2:54 PM  

Also, flat money supply ... The growth in the Federal Reserve's balance sheet is due to bank bailouts, not money printing -- they borrow from the banks and use the money to buy risky assets from the banks at inflated prices ... This is not inflationary, it's not "quantitative easing" either.


Anonymous said...
3:25 PM  


Agreed completely, this is not QE. I thought Bernanke did a good job of explaining his approach this January in London (link below).

L/S Equity Guy said...
5:04 PM  


Agreed completely, this is not QE. I thought Bernanke did a good job of explaining his approach this January in London (link below).

L/S Equity Guy said...
5:04 PM

L/S Equity Guy said...
5:04 PM  

Pink Flamingo Check - comments on positioning welcome:

long scandies
long IDR/INR
Long Dec 09 STIRs
Long Bund / Short Gilt

Anonymous said...
5:10 PM  

Nice list. I imagine that there are some commodity (sugar?) or sector (BTK?) Analogs as well. I have 1.5 of your list....and frankly, if the 1 sells off, I have close to limitless appetite to add.....

macro man said...
5:22 PM  

Given that we are approaching options expiration in the US on Friday and ahead of the Labor Day Holiday...the play du jour will be to sell this recent pop in implied volatility.

Anonymous said...
5:49 PM  

Yeah, sugar should have made the list. Like yourself don't often frequent commods space so don't have a feel for who owns it aside from CTAs.

Scandies I have recently switched to long nok/sek. Don't have idr/inr although could make a case for inr call spreads.

Own a sociable amount of Dec 09 along with everyone else just mildly nervous about some of my structuring.

Looks like someone rhyming with coward just printed the ERM0C 90/2 1x2 in size.

Anonymous said...
6:12 PM  


(sorry, retarded question from a retarded cap structure guy in asia)

Nemo Incognito said...
2:30 AM  

jun10 eurodollar calls or something

Anonymous said...
7:38 AM  

i mean euribor

call me an equally retarted and increasingly happy bear

Anonymous said...
7:46 AM  

Yeah, its June 2010 euribor calls...a certain London-based macro fund is a huge consumer of ratioed call spreads/butterflies, etc in the euribor strip.

Macro Man said...
8:02 AM  

More case in point of how to make money in HSI, fade the Shanghai move 45 mins after it starts. WTF. Still waiting for explanation of whats up over there.

Nemo Incognito said...
8:22 AM  

That was peculiar, though I guess in fairness Shanghai only really went south when HK was on their tiffin break or whatever you want to call the 2 hour + closure from 12.30 local when HK re-opened, you had the nice gap lower to catch up.

Macro Man said...
8:38 AM  

check the chart, rot had set in by 1145 and futures don't close until 1230. yeah hard to say whats up - will forward you GS email, they clearly have NFI.

Nemo Incognito said...
8:40 AM  

We've already had a giggle about that one...

Macro Man said...
8:50 AM  

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