Monday, October 31, 2011
A few days after the Euro announcement and the weekend appears to be full of "it won't work" arguments, which is exactly what TMM expected. But like all good Investment Bank research pieces never combine a price and a time, most of the articles don't say when. Yes, Europe may well fail, but that doesn't mean it will do so before Christmas.
The Japanese came back to play again today, bang on schedule with respect to the upcoming G20 meeting. Whilst the market has instantly responded with skepticism citing every other recent failure of BoJ intervention to hold USD/JPY up, TMM congratulate the BoJ on their timing and purpose. Just as the CFTC positioning data showed new recent highs in Yen longs (and even a soothsayer trigger on Friday) they mullered the market. And of course the bonus is this: you print your own currency, sell it for USDs which at some point you then switch to Euros to purchase nice fresh EFSF bonds to bail out Europe, getting big handsome slaps on the back from all for your efforts from your G20 friends. We can't see anyone in Europe standing in the way of such helpful intervention and, on that basis, can see Europe going very quiet with respect to Chinese currency manipulation charges. First, down to the basic politics of criticizing your benefactor and second, building overseas reserves is exactly what the Europeans want them to do as long as it goes into EFSF.
Italian bonds have been the new focus of stress. Well, if your CDS is useless, you may be having to put on the only true hedge - selling the underlying. But TMM think the *real* reason is that MFGlobal is rumoured to be liquidating its European bond portfolio. Italy's austerity plan department must be using the same PR company as the banks. Announcing their purchase of the new government fleet of armour-plated Maserati's is on a par with Barclay's profit announcement. Not only are they higher than expected, at up 5%, but in announcing that investment banking is down, they are effectively saying "Yes, this has all been made from YOU, Mr and Ms retail St Paul's Cathedral campsite dweller". When will they learn humility?
Put the Italy, intervention and natural euro-scepticism creep together and we really aren't surprised that EUR/USD is lower and the equity bears are taking solace that the path to truth has been embarked upon again. But still TMM are not convinced. Positioning may well have flattened out dramatically as can be seen here (SPX - green line, HFR Equity Market Neutral - yellow line, HFR Macro/CTA - orange line, HFR Global HF - white line)...
...but the mentality is still so far entrenched in the "this is just a bear market rally that we cant see it really turning" we still see another push higher given that it appears that most people missed the 20% rally off the October lows.
Now Today is Halloween.
As TMM are somewhat UK-biased in local traditions, the implementation of this US festival has never really cut it against the age old UK tradition of burning effigies of religious motivated terrorists whilst at the same time having the opportunity to behave irresponsibly with your own explosives at home. Last night saw UK TV start to issue a new trendy version of "don't play with fireworks" warning, but TMM still feel there is no better way to learn to respect them than to have an old fashioned Jumping Jack firework lodge in your turn ups. But we will bow to popularism and TMM have been selecting their favorite outfits...