STPLT Indicator

So much for the renewed attack on the weak EM. Despite wobbles in the morning in DM equities they never really succumbed to any supposed correlations. Serves us right for not trusting our own beliefs that the market is getting these correlations wrong and thinking they would do so again, even temporarily. So no pull back and we had to put back on the longs we had taken off.

We are left this morning hearing the siren call of one of or favourite indicators - The STPLTI. Standing for "Short Term Pushed Long Term Indicator", this indicator is usually a precursor to shallow pocketed investors being removed from the field on stretchers. We have seen it work perfectly in Europe, where speculative positions on the imminent demise of the Euro were bundled up into old suitcases, put in the attic and reclassified as "long term". Which is all well and good if you can afford to have your positions slowly dry and decay whilst you wait for Godot, but in the real world you normally need that cash for something else so harsh truths of cash management ultimately force you to retrieve the remnants, count the cost and start again.

The same has occurred in the gold market (just read Zero Hedge comments) and we would posit is happening right now in the Bitcoin market. But this morning it's the EM market that looks like Downton Abbey on Boxing day, huge trunks being stuffed with all the short term positional Christmas joy of EM demise to be shipped either home or up to the attics because it's over in the short term but will happen again.. Sometime.

TMM aren't immune to STPLT themselves and their own portfolios contain the dusty remnants of stocks that having once been sure fire things have basically become free options with pico-deltas (all that battery technology that didn't make it). But we are all too aware that in this world of short term return measures you need very deep pockets to ride out the "one day" trade. Which of course most people haven't got. So when we hear, as we are this morning, those folks short EM (who two weeks ago were looking for imminent collapse) saying that it's now a "long term trade 'innit", we look for things to start motoring higher and we go long stretcher bearers.

Do we detect a bit of this in Europe too? OMT legality has raised its head again in a big way. Wolfy in the FT and Euro permabear Evans-Pritchard are touting it as disaster but TMM think that OMT is much like a fire extinguisher. Even if they are ruled illegal it doesn't mean that your house will catch fire in the first place nor that you wouldn't use them anyway rather than burn to death (even if the German lodger does prefer self-immolation). Others would suggest though that if it were known that the fire extinguishers may not be used then it's open house for the arsonists.

So if that were the case, the most sensible thing to do would have been for the Germans to collude quietly with Euro central command and agree not to voice any of their debate. So even if they did decide that OMT is illegal, they just wouldn't tell anyone. Just like Reagan's Star Wars, it isn't the reality, it's the possibility that breaks the back of the aggressor.

So why are the Germans being so German about it? Perhaps it's just constitutional process that has a course to take and isn't designed to upset anyone, but like that giraffe being cut up in Copenhagen Zoo in front of the kids, it's a fact of life that has shocked those that don't like to see the messy bits of reality.

Maybe it's time to just go with the flow, rather than booking a lot of space at your local storage company and hoping all those now long term positions don't end up on "Storage Wars".



"Hey Barry, I've found a long DEM/ITL from 1998!"

Today's stuff.

Europe:

Last week's ECB press conference was notable for how hawkish it was relative to expectations. Which has TMM wondering if this is actually a glimpse of a deeper policy that would go a long way toward explaining the ECB’s inactivity. That is that the ECB recognizes that one of the key misalignments in the Euro area is productivity-adjusted labor cost differentials. Even after the recent crisis, Germany labor costs remain very competitive vs those of other Eurozone countries. As long as that persists, Germany will have a high trade balance and negative capital balance with its EU neighbours. In other words, German capital will continue to finance Germany exports.

Now, within a currency union, the smoothest way to normalise this gap is over time via differing inflation levels within the EU over time. In particular, if German labor cost inflation exceeds that for rest of EU for sufficient time, real labor cost differentials will shrink. To us, this appears to be the path the ECB is taking.

If this is the case then it is worth noting that since Germany is much smaller than half of the EU, this policy stance by definition would mean very low inflation in EU ex-Germany, and as a result low inflation prints for the Eurozone as a whole. In other words, the ECB WANTS low inflation prints for the Eurozone as a whole because it signifies that the labor cost differentials are narrowing. The ECB’s implicit acceptance of a long period of below target inflation (via its staff forecasts) is reflective of that. As a result, as long as inflation expectations remain anchored, TMM thinks the ECB is likely to continue its current policy of non-action. Whether inflation expectations will remain anchored, however, is a whole other story altogether. But the lack of action was the removal of one risk support.


US: The ISM print last week was obviously the big shocker, but TMM thinks that it overstated the drop, just as the previous prints near 57 probably overstated the real improvement. Weather remains a large factor clouding many recent data point and TMM thinks it will be some time before that is cleared up. On the bright side, barring a more severe mid-cycle slowdown, there isn’t a great deal of room for the ISM print to fall further from here. But it was the NFP that was the main headline. There was something in there for everyone. Poor headline for the bears and yet stunning households for the bulls. As usual the one that is touted most is the one that supports the following price action. As stocks shot up it was classed "Boomshakalaka"!

Momentum - This week has started though with a dramatic fade in momentum. The rate of rally in US markets into their close had us looking for a reasonable follow through in Asia, but overall it was pretty unimpressive and we were interested to see USD/TRY, USD/ZAR and gold all moving higher. The gold component particularly noticeable. So whilst we remain fundamental bulls for equities and EM the speed of the return of TRY and ZAR moves, as HF bullies give them another beating, combined with the rapid decline in DM equity market momentum has us trimming our longs and playing a turn down for the next couple of days giving us another dip to buy on, but whilst folks love to correlate everything (usually wrongly) in market slides we won't stand in the way today.

TMM also have a friendly bet that if mrkets do indeed start falling today the NFP corpse will be rewrapped in its "bad news" clothes and wheeled out as evidence.

Talking about dips to buy on, here is our favorite chart du jour. -



How exciting for all those lucky bitcoiners! Yet another dip to buy on! We've said it before. Railroads of the late 19C. The ideas are good but that doesn't mean you will make money owning the first iteration. One aside, with gold rallying and bitcoin dumping could we be seeing the "log cabin" switch taking place where large swathes of Montana are switching out of surefire Bitcoin back to surefire Gold? Of course not, but someone is bound to seriously suggest it (buy shares in gold coin retailers in mountainous States).

Oh and finally we just have to give credit to the genius "Gigawipf" who gave us the floppy disc orchestral version of Soft Cell's "Tainted Love" which we make today's "playing out" music.

NFP Number Generator

Team Macro Man proudly present their NFP number generator





Just input your min and max and the result will be as valid as anyone else's. Don't like the result? Just press the "gonna be" button again and it will give you another!

NekNominate Germany

Central banks are like a group of mothy wallets at the bar. Their drinks are running low and they are trying not to be the first to finish so as to avoid getting in the next round. The Fed has already said that as they got the last round, and the one before, they ain't stepping up again. Abe's out too having bought the 1.5 litres of 100 Proof sake which has turned out to be weaker than everyone had hoped. The moaning skinflints of the emerging markets, lecturing socialist drinking equality, can't afford a pot to piss in (let alone to buy the substance to fill it) and the rich Emerging Markets are doing alligator arm impressions and trying to hide their rolexes. So it would be rather honourable for Draghi to push his way to the front and declare that this round is on him.

But as ever it's the teetotal German, who everyone would rather wasn't in the bar at all, holding things up through a combination of moral lecturing and downright threats. But there has been talk from "sources" that the Germans may be willing to get off the wagon and share a sip of sweet sherry.

But TMM would like to go one step further. You may have heard of, or even participated in the Facebook craze of NekNomination which has seen young adults around the world formally participate and publish a form of self abuse that in the past we did quietly in private, namely mixing up the remnants of the cocktail cabinet (or worse) in a pint glass and drinking it.

TMM hereby "NekNominate" Germany to neck a pint unsterilised liquidity, film it and put it on youtube.

It's all EM is it? You sure?

It's all EM is it? Taking the two favourite stress indicators of ZAR and TRY as barometers of EM deficit country woes we can see how they linked to the fall in S+P500 futures. But once their job was done in tipping over DM equities they have delinked.

Here we have a cluttered chart of the last 20 days in S+P500 futures, ZAR/USD and TRY/USD.



And a clearer one with just the ZAR showing



If you think it's all EM there is an obvious trade there for you.

But perhaps this isn't all EM and once again a correlation makes a nice story while it fits, until it doesn't, at which point you need to go and find a new one.

Keep Calm and Carry On.

RBA leave rates on hold. Ok this was as expected but the hawkish swing within the statement with the suggestion of "stability" in rates was a big enough surprise to give AUD a rare lift. There must be some wag out there other than us wondering if the RBA is praying that the odd over-excited EM speculator doesn't decide that as AUS is an EM currency and push it further south than even the RBA would like. But in a way that trade has been done. AUD shorts were well and truly on the 2014 consensus shopping list and it was probably only a matter of time until that trade too took its turn around the back of the woodshed.

That US data was not a nice surprise for TMM and the resultant precipitous move down in US equities was not the most pleasant of rides. But, on a technical basis with S+P500 1775 pierced the technical move lower would have needed some pretty decent bounce elsewhere to counter it. Flag breaks and measured moves should have seen us near the highs of September.





Instead we had the ISM from Hell. Not only hell in the number it produced but also its reliance. Weather weather weather Etc. We never anticipated climate change having the added distortionary function of casting a veil of opacity over all our data. The outlook for this month's data is ... foggy.

UK data however continues to be encouraging with construction PMI topping estimates. We expect the normal barrage of "wrong type of good data" to come from some quarters, no doubt dragging up housing bubbles. Housing is such an emotive debate as in simple terms half the population want prices to go up as they own it, whilst the half that don't, don't so that they can. All arguments seem unwinnable so why bother.

If we hark back to our first post of the year, where we mentioning a wash-out needed to bring the bears back out of their caves, then we have been rewarded in spades. But we are the first to admit that we caught the knife far too early. Remarkably, our dalliance into EM has actually been the least of our pains (with sub-sahara Africa actually showing a profit). It's the DM sector that has hurt us most and so we should step back and have a look at how the land lies today.

A quick check on the EM barometers -




Stabilisation and even recovery with TRY and HUF up 1.5% each.

So the day starts calmly after momentum and fear gauges were running high yesterday (highest volume of stocks traded on NYSE yesterday since the Flash Crash). Now one of the products of fast moves in markets is to see short term players applying long term arguments to support their short term positions and the preponderance of EM tourists is interesting. As we know tourists need momentum as their attention spans are limited and carry is a killer in slow EM markets (don't be short a quiet market).

TMM imagine that their is bemusement in the camp of the goldbugs. Here we have EMs going to pot, US markets tanking and yet, their trusty crutch of Gold has done pretty much zip. (below is gold vs SPX)







Which leads us to believe that Gold is more concerned with continued tapering rather than asset meltdown. So this might suggest that markets are pricing slowdown in US markets and no slow down in tapering. But isn't that not what Yellen is about? Surely if growth turns then the Fed will respond (as we have said before). So in a bizarre twist perhaps the EM's are praying for a US slowdown!

Meanwhile debate over the responsibility of the Fed to act responsibly continues with a call for actions to be coordinated. Which To TMM appears pretty rich as you have a large group of countries calling for coordinated action from one of the very few countries that is willing to take any action, whilst they themselves do nothing. Echoes of "Benefits Street".

We are keeping calm and putting some carry on, but we are also fully prepared for another trip to the proctologist.

TMM Stop Loss Management

TMM stop-loss order management - Hi-tech stuff.



The sudden halt to the tanking of the markets has left us lucky to be alive.

The Case of the Missing Bodies - A Sherlock Holmes Story

OUTSIDE SCREAMING "Murder! There's been a murder! Mr Holmes! Come quick!"

[Holmes stirs from the obituaries column in The Times, walks over to the fire where, after warming himself, secures the guard and places his Meerschaum pipe on its rest on the mantlepiece]

HOLMES "Watson, bring me my coat, it appears that there is a disturbance".

[Outside in the street, A crowd throngs around Holmes]

HOLMES "Please, can you all calm down. what is the trouble?"

CROWD "There s been a MURDER well more than one murder, its terrible! It's down the Eeyems. Mrs Turkey. She's DEAD! And Mr Rand, And the Hungarian lass and the Russki kid.

HOLMES "Come Watson, best we pay a visit, if for no reason other than to calm this over-excitable lot."

[Arriving on scene - The Eeyems is a higgledy hotchpotch of narrow streets once populated by the poor but the arrival of an aspirational young has seen pretences of gentrification, however the underlying squalor is never far away. Holmes and Watson are let in to a dingy hovel by an attendent constable where an old woman is propped gasping against a table.]

HOLMES "Ah Mrs Turkey, I see that you are breathing. A good sign of a lack of death. Watson, would you be so kind?

Dr WATSON "Her PMI is slightly weaker than the last reading but apart from a bit of bruising to the FX causing some rate shock she's not in too bad a way".

HOLMES "Hmm .. so not DEAD then Watson".

Dr WATSON "No sir. Not Dead."

HOLMES "Not a murder then. No."

BYSTANDER  "But, but she WILL die though and THEN it will be a murder"

HOLMES "It will only be murder when I say it is a murder. What makes you so sure that she will be murdered"

BYSTANDER "Well look at her, she's weak and feeble, hasn't been able to defend herself against the last attackers so she's just bound to be murdered"

HOLMES " Hmm .. Looks to me like we have a simple case of GBH. Constable, move these gawkers away and let us proceed to Mr Rand's house. Come Watson."

[Arriving at Mr Rand's house]

HOLMES "Good evening. May I see the corpse please?"

CONSTABLE "Err, it's not quite a corpse sir."

HOLMES "In that case may I see the not quite a corpse? Where may I find it"?

CONSTABLE "Sitting at the table drinking a cup of tea with an ice compress on his eye"

HOLMES "Watson, what do you make of this?"

Dr WATSON " PMI A little lower but really nothing to worry about apart from that punch in his eye"

VOICE FROM CROWD - "No, no. He must be dead, we gave him such a kicki…."

[Crowd falls quiet]

HOLMES "Sorry? "

VOICE FROM CROWD " No nothing, but he looks really ill so if you come back later he will definitely be dead"

HOLMES "Hmm I see. Constable, make sure none of these people can get to Mr Rand and let's move on. Where's that Hungarian au pair? And is there any news on the Ruski Boy?

CONSTABLE "The Ruski Boy is fine, his PMI is pretty weak at 48 but he's a big strong lad and he'll pull through. As for the au pair, she's popped down to Miss Brazil's where they're talking about local rights. They're apparently planning some protest against EM cruelty and are demanding large donations from rich countries"

HOLMES "Not dead then? Neither she nor Miss Brazil are dead."

CONSTABLE "No, Hungary just had a bit of a scuffle with a debt collector down the ally but she looks ok. We had the Doc check her out. PMI was 57.2, fit as a fiddle"

HOLMES "Hmm... Despite what the crowds are saying it appears that there has NOT been a murder. But something odd is going on. Why are the crowds so convinced that murder is afoot when there is no body?

CONSTABLE "Well there have been reports that a man with a beard hasn't been seen around here"

Dr WATSON "HASN'T been seen around here? Since when has someone distinctly NOT being at the scene made him a suspect for murder?"

CONSTABLE "Well that's the thing sir. People are saying that if he ISN'T seen then people will die and it will be him that's murdered them"

HOLMES "I see, so let me understand this. If he isn't here then people will die, or more importantly, people THINK they will die. So that implies that he must be giving them something that either IS keeping them alive, or is just thought to keeping them alive. Hmmm".

WATSON "So you think that if he isn't seen then maybe the crowd think that a person is going to die, so they sort of, errr, help them on their way so to speak?"

HOLMES " Well Watson, I don't think this crowd is of the kind persuasion to buy them a first class all in luxury one way trip to Dignitas for a painless lifting of their mortal coil, no Watson. But I wouldn't put it past them to pop round and relieve them of a few possessions that they won't be needing in the afterlife and perhaps administer a little boot action to help them on their way. But first we had better track down this bearded mystery man"

CONSTABLE  "The Inspector's just called. He says he has something of interest"

[At the police station]

INSPECTOR "Sir, I think you'd better see this. Its a report from Traffic. They've been checking the CCTV and found something odd. Every month a large truck with United States number plates drives through the neighbourhood. And guess what, the driver has a beard"

HOLMES "The possesion of facial hair within the vehicular conveyancing industry is not exactly uncommon, so I presume you have further circumstantial evidence?"

INSPECTOR "Turns out that the truck is delivering cash from a company called Fedorama Enterprises to its customers in the USA, but .. here watch this . " [constable puts video on play]

HOLMES "Ah indeed. Would you look at that."

DR WATSON "The back doors aren't shut properly and money is leaking into the street and see! All the locals are coming out and grabbing it! Look there's Mr Rand and is that Mrs Turkey?"

HOLMES "Yes Watson, but they aren't alone, they are all at it. So I have two questions. What has happened to this truck? And, more importantly, why have the crowd specifically picked on the victims we saw today"

INSPECTOR "I can help with the truck question. It would appear that Fedorama Enterprises have decided to phase out production, so the truck is making fewer trips."

HOLMES "I see, now if I was in a position of depending on what came off that truck I'd start to worry about my future if it's visits started diminishing. A crowd suffering fear is a dangerous beast Inspector and is liable to be whipped up into making some rash choices in the heat of the moment."

DR WATSON "So what happened to the victims we saw today?"

HOLMES "Did they have any savings. Has anyone checked their bank accounts? "

INSPECTOR "We have Mr Holmes, Not a bean, well Hungary did but turns out she owes it to Mr Swiss"

HOLMES "Ah I see, so when times were good they didn't put anything away for rainy days."

HOLMES "Well it would look, Inspector, as though the crowd themselves, the ones crying murder, are not exactly without responsibility. They appear to have meted out their own punishment upon their brethren for the very fact that they are the weakest in the community. Of course the crowd can hardly cry "Murder" and have a murderer convicted and compensation sought if there is no murder. For a murder you need a body. Our victims, despite the best efforts of the crowd are, though bruised, very much alive and the expectation of someone to be dead in the future does not qualify as murder. But this does not mean that a crime has not been committed. Inspector, we need to talk to that truck driver.

[Later in the Interview room]

HOLMES "So Mr Bernanke, did you not know that money was blowing from your truck as you made your trip through the neighbourhood of Eeyems? You did but you didn't care? Did you not see how it was affecting people's lives? Ah, you are just a truck driver and it wasn't your business? Can I put it to you Mr Bernanke that you knew exactly what was happening and far from being concerned about the leaks of money from your truck you were happy to see the locals, who were picking up that money, using it to buy goods in your company's shops? As maybe? And no, you are right, there aren't any rules against that. Which may well be unfortunate as your actions have caused the community a lot of distress. However Mr Bernanke you are not leaving here a free man. You are guilty of one crime.

HOLMES "Inspector! Arrest this man for DRIVING WITHOUT DUE CARE AND ATTENTION!".

[Later in Sherlock's rooms with fire glowing and the distinctive aroma of pipe tobacco whisping in the lazy air]

HOLMES Well Watson, an interesting case. But one which proves how the rule of unintended consequences abuts so closely to that of the reality of intended consequences. And whilst we have no bodies, we have no murder. The crowd wanted Mr Bernanke's truck to keep rolling but in their eagerness for compensation for a crime committed against them, they fabricated their own evidence overlooking the fact that the victims they provided were not in fact dead. We must remember that whilst correlations in actions and reactions may exist, indeed even when causality and correlation are established, neither imply responsibility. And even if responsibility is established then we cannot prosecute if no Law has been broken. But, unfortunately Watson, we should now expect another reaction. For when the law is seen to be lacking by those who wish their will upon others, they will raise their flag of last resort. That of "Moral Responsibility". I look forward to tomorrow's newspapers with a hardly bated breath."