If TMM ran Europe

There is a Carlsberg advertising theme that has been running for years that is on the lines of  "If Carlsberg did xyz" followed by some Utopian version of xyz. We don't know if it's our desire for a cool lager or the mess in Europe that has triggered us to do our own version, but here it is.

If TMM ran Europe

- London would be where Cannes is.
- The European Parliament would be in Athens.
- Current political leadership of Eurostriches would be freed onto the African plains.
- New political reps would have votes allocated on issues dynamically by "Likes"or "Followers".
- Switzerland would be included and stop pretending.
- UK would leave the EU and join NAFTA.
- The ECB would be in Bangalore.
- Policy makers would sit on trap-doors over shark tanks on 1 min time triggers only over-ridden by them making a decision.
- "Ocean Finance" would consult Spain.
- The Bundesbank would be a water park.
- Greece would discover oil (but only enough to pay their debts).
- Mediterranean resorts would be pegged to beer prices.
- Health and safety would be left to Darwinian selection.
- Pan-European mobile phone calls would be at "local" prices.
- OCD suffers would be moved to Naples.
- Fruit would be misshapen.
- Human rights wouldn't contradict common sense.
- Coffee prices would be capped at E1.50 a cup but at 50cents in Paris, Switzerland and Venice.
- Eurovision song contest votes would be weighted by debt/gdp.
- Lying about your finances would be a capital offense.
- Day-Glo liqueurs would taste as good at home as they did at 1am on holiday.
- Pedestrians and cyclists would be as punishable as car drivers for accidents.
- Pension schemes, casinos and "Dignitas" would be run as one.
- Germany would be made to play Santa at Xmas.

JFDI

 Many years ago when TMM were junior probationary assistant trainee dealers they came across this term scrawled over deal tickets that were being sent back to the back office after a query. When consulting with medical friends it appeared that it was also commonly used on path lab requests returned asking why the test was necessary. Now TMM are screaming it at their screens every time they see a headline along the lines of "XYZ European central bank/government/politician hasn't yet decided on anything".

So please -  Calling all Eurostriches, rabbits in headlights, procrastinating bureaucrats hopelessly out of their depths, policy wonks who can't bend the current rules enough to fit, political leaders having to cope with something beyond local opinion polls, Germans hung up on outdated fears of hyperinflation, Frenchmen hung up on not being peripheral and peripherals who just don't realise the game is up ....    JUST F'ING DO IT!

If it involves kicking Germany out with Greece; if it involves pawning the Sistine Chapel, Alhambra, and the Elgin Marbles (again); if it involves running the printing presses until they melt; if it means nationalising banks under a  general Europe umbrella raather than a domestic one; even if it involves taking us back to the stone age  - PLEASE JUST GET ON WITH IT! Some of us have lives to lead and watching the sandcastle of the Euro dissolve as the tide of reality comes in, is as predictable, sad and frustrating as watching the real thing at the end of a balmy day on the beach. Either kick it down, walk away or get the JCBs in to protect it with a 30ft coffer dam as some of us need to move on.    

But still it drags on. Yet again today's headlines continue to be a passage of indecision, full of "nots" and "haven'ts" against "wills" and "doings" whilst the market is fast evolving into a "no news is bad news" mode and until we can get this elephant out of the room we can't focus on what else is going on in the real world. For now it's a mad world. And we know it's a mad world when:

- Denmark issue at negative yield.

- Taking on the SNB is a near free option.  

- Headlines appear 12yrs out of date - ECB SAYS NONE OF EIGHT EU COUNTRIES UNDER REVIEW MEET REQUIRED STANDARDS TO JOIN EURO CURRENCY UNION

- UK politics freeze up in apoplexy over a U-turn on a tax on hot pies.

- Robert Mugabe is appointed UN "Leader of Tourism"


Team Macro Man have given up and are wandering up the beach to the Pub.

Sinostriches

TMM have been suffering deja vu. Groundhog year perhaps.

The check list -

European spreads - check
Bank bailouts needed - check
Equity markets on the slide - check
Complete and utter silence from the very people that should be seen to be taking control of the situation - CHECK CHECK CHECK!!!!

The Eurostriches are back. We have just revisited our first post on the Eurostrich back in summer 2010 to remind ourselves of their morphology and were struck by the familiarity of conditions to the point of depression. Unfortunately the one noticeable difference was the amounts mentioned that would shock the market. Today we need to have at least one more zero added. E30 billion? Pah ! That's nothing!

Back in 2010 the market was looking East for the ultimate bailout, but today Voldermort and his Death-eaters appear to be too distracted patting out the flames on the hems of their own robes to worry about taking over the world. But TMM are worried that China is starting to suffer from the same disease as Europe. That of the Eurostrich.

The last policy response we saw from the bridge of the Chinese ship was to ram the engines into reverse to counter a boiling property market. Now whilst TMM have no love of Chinese property developers, cement magnates or officials who use informal financial channels in Macau to take cash offshore, there is a difference between a smack around the chops, solving the root of the problem (political accountability, abominable oversight of SOEs and a need for "real deal" control style privatization) and putting the whole economy into cardiac arrest with a credit/fiscal baseball bat to the head.

But since this last response, the infighting between the Captain and his officers on the bridge of the Chinese economy appears to have left no one in charge of the controls. Only the PBOC appears to be tinkering around the edges and TMM think they should stop behaving like a former pimply 15 year old turned 30 year old overpaid banker/fundmanager, jumping up and down on the couch at Spark in Beijing celebrating its newfound cultural relevance and realize that it is doing as much to bully the economy now as the property developer bovver boys do when doing "land consolidation".

This morning there was rumoured hope of a new stimulation package but this was swiftly countered by *CHINA HAS NO INTENTION TO INTRO LARGE SCALE STIMULUS: XINHUA. TMM would like to believe that this is a comment on the lines of the Bernanke Put, to be taken as meaning that they have no intentions as there is no need, rather than there would be no intentions even if there is a need. Or rather, that the easing this time around is unlikely to be the "just throw a couple of trillion of loans at it", and more about targetted easing, particularly on the fiscal side.

Yet TMM do have a terrible fear that the diseases of political paralysis that have been seen in the US during its debt ceiling debates and in Europe with the lack of strong hand response, is now breaking out in China. If TMM don't see any signs of faster implementation of Chinese infrastructure projects then we are going to be dreaming up a new ostrich term for the Sinocrats.

Sinostriches perhaps.

This Is How You Get Got

You're in the Bushveld digging up rocks
Got, this is how you get got
LSE listed and offshore borrowings too
Got, this is how you get got
Trying to hustle in Africa without breaching FCPA
Got, this is how you get got
Some guy called Paulson said "I like your stock a lot"
Got, this is how you get got

TMM can't help but think of the lyrics of Mos Def's "Got" warning of the dangers of flaunting wealth when thinking about precious metal miners. GDX, the largest ETF covering gold miners has flown high and far since the end of 2008 and it supercharged much of the more inflationista funds' returns. Palladium is the standout but all of them ripped and ripped hard through mid 2011. If you were buying gold and particularly gold equities till you were almost blacking out you could do no wrong.

Recently however, this has changed as can be seen below. The first chart is gold versus GDX.

The second is a bunch of platinum miners and platinum and palladium. As you can see, for both the equities are not just doing really badly, they are underperforming physical in a big way.

Not that physical is looking healthy in gold - TMM's brokers indicate that given the stuttering out and decline in ETF ounces for gold seen below in white is a big part of the drop in physical (orange). Were it not for central bank dip buying things would likely be much worse.

So, aside from TMM's view that you've heard before - you know - that this recovery in the US is sustainable enough to not justify merciless slotting of USD as an investment strategy anymore - TMM thought it would be good to give you a couple of choice quotes from Eastern Platinum, a South African Platinum miner that they released in May last year.

On Friday 6^th May, mine vehicles were driven by employees through the security gate to the Zandfontein Mine causing damage to mine property.  Employees then embarked on unprotected industrial action. Mine services at both Zandfontein and Maroelabult underground mines were also damaged, and for safety reasons, the management at CRM instructed the mines to be vacated. Approximately 180 workers then proceeded to unlawfully occupy the mines. Mine management advised employees to cease this illegal action, and simultaneously, a court interdict against NUM and its members was granted that instructed NUM and the employees involved to cease the action and vacate the mine. The workers involved made several demands to management, as well as threats of damage to mine property and underground infrastructure if management did not comply with these demands. To safely resolve this situation, to prevent it from escalating, and to safeguard the overall integrity of mine installations, management had numerous meetings with NUM and instructed them to ensure that their members vacated the mine and ceased their unprotected strike action. An offer was made by mine management to resolve the situation but this was rejected by NUM and/or the employees involved who refused to vacate the mine and made yet further demands of management that were rejected. As these workers refused to vacate the mine, the offer made by management was then withdrawn.
Following the failure to resolve this illegal action by some of their members, NUM invited the Congress of South African Trade Union (“Cosatu”) to assist in negotiations with the instigators of the illegal industrial action. Certain statements were made by the Cosatu and NUM representatives to their members in order to encourage them to vacate the mine. There was no agreement in place between CRM and NUM/Cosatu at this time. The workers involved in the illegal action subsequently vacated the mine.

Stuff happens, but stuff happens more in emerging market countries that have bad institutions and whose labor unions are the political support base of the ruling party as the NUM is with the ANC. TMM would like to say that anyone who thought doing business in South Africa was going to be easy or allow one to earn the excess return of precious metals over the contents of South African CPI or any other wages proxy failed in a big way to understand this country. If you want to own a mine you don't just need high metals prices, you need them to rise faster than your costs. TMM think that mining in South Africa and having your profits increase very quickly is a bit like Mos Def's description of flashing all of your rocks in Brooklyn. Dangerous, and not a long run equilibrium.

TMM are still negative on South Africa where most of the gold and PGM output comes from, miners in bad jurisdictions and when we want to short USD we find something cheap, not something shiny. All great parties have to end and TMM thinks it time to call this one whatever the gold bugs say.

A Spanish Farce

[Outside a Spanish restaurant]

Spanish Government [patting pockets] - "Hang on... Has anyone seen my credit rating? I can't seem to find it"

Santander - "Uh oh, where did you last have it?".

Spanish Gov. - "I'm sure I had it a moment ago. I just used it to issue. You remember? Really expensive place. Cost a fortune!"

Santander - "Ah yes, thanks for picking up that one. I owe you. Hmmm.. You sure you didn't leave it on the table"

Spanish Gov - "No I was really careful. You can't trust anyone these days. My friend Portugal left his rating in open view, next thing broken glass and rating gone!"

[Bankia blushes]

Santander - "Bankia , Have YOU seen it anywhere?"

Bankia [sheepishly] "No??".

Santander - "Sure?".

Bankia - "Yup!".

Santander - "What's that bulge in your pocket?".

Bankia - "Errr,.. Nothing?".

Santander - "You aren't thinking of nicking the Spanish Gov's credit rating and using it to issue against, whilst the market isn't looking are you ?

Bankia - "Nope!"

Santander - "Come here! Show me what's in your pocket! Hmmm what's this then?"

Bankia - "Nonononono! you don't understand! I'm just BORROWING it! Just until I can repo back through the ECB some cheap cash! No harm done, no one will notice! Look I owe some bad people about E19bio at least. Pleeease don't tell! I'm going to give it back I promise!".

Santander - "Look if you give it back now, we won't tell anyone and it doesn't look as though the Gov has noticed what you are up to. Just put it back on the table before anyone sees".

[Pauses]

Santander - "Hang on, HOW much did you say you can get with that rating?".

Bankia - "Well it should do me for at least 19bio, but I reckon it's good for a lot more before it wears out".

Santander - "Hmm. Look, if I don't tell the Gov and if we do promise to put it back, which we will right? Then perhaps if you do me for 20bil as well then I won't tell if you won't. No harm done and all that. Times aren't exactly that easy for me either".

Bankia - "Yes exactly! No harm done see? We stay within the ECB rules, the blind accountants don't see what's happening (as usual) and we just give the Gov his rating back once we've err, "borrowed" it for a bit. They won't even notice!"

Santander - "Better not let the markets know though"

[off stage - NEE NAW NEE NAW NEE NAW NEE NAW]

Bankia -- "Shit, it's the markets! Arrgh they are on to us, look at the yields! And they've got the Bubahounds with them. Those bastards will sniff out the faintest whiff of monetary financing!! LEG IT!!!!

[Exit Spanish banks from the stage of global finance]

Inspector Weidmann - "Evening All! Now what's been going on here then? Hmmm. A European Sovereign distraught having lost its credit rating? The smell of piss-take in the air? Only witnesses are accountants, ECB and a crowd of policy makers, but they all swear they saw nothing? Hmmmmm ..All VERY familiar .. Sargeant? We have here another case of "Printing Money". Round up the usual suspects!"

Inglorious Europeans

The post we planned on today has had to be delayed. But we leave you with a question -  Are the current European negotiations going the same way as the bar scene from Inglorious Basterds?  





You are welcome to add your own film clip vs current event in the comments.

Back tomorrow.    

Wasp in a Bottle.

  Yesterday TMM were trying to write a post and just gave up after rewriting a couple of paragraphs a few times as each sentence suddenly seemed to deserve a whole post. But reducing down the boiling mass of poorly linked thoughts we ended up centring around the idea that until we get the Greek elections out of the way the European function could suddenly move from the melt mode to sideways trading as the "sell" part of May turns to "go away". The bounce yesterday seemed to support that but the new levels of  panic earlier today challenged it, but by no means negated it. Equity markets have rapidly given up yesterday's gains but haven't broken new lows, periphery European bonds are steady and  it really seems to be the mainly the FX market that is shouting and screaming. No change there then.

 With that in mind we are going to stick to our "not really going anywhere for the next 2 weeks" view, so despite spikes of buzzy noise we expect the wasp to be trapped in the bottle. This led us to think that perhaps we should be using this morning's spikes in short term vol to sell it. This train of thought led on- Sell 2 week vol but perhaps buy 1 month for after the election event? For direction as well and in what? Is this for a stand alone trade or a hedge ? Looking at the Greek hedge (garden centre jokes aside) we feel the ultimate explosion in Euro would surely have to be in Eur/chf where, unless the SNB want to become the vomitorium of Europe, they would have to let the floor go at least temporarily. So we either get fancy and sell 2 week eur/chf puts and buy 1 month or we just don't bother and sell eur/chf cash. We then we got distracted and didn't do anything.

Without any new news, the debate is becoming religious over Europe and we do consciously try to avoid religious issues. This is also why we won't be talking anymore about Facebook. Elsewhere it does look as though we are coming to the end of the current supply cycle and the BRICS are losing their mortar as Brazil goes nuts, Russia's without love, speculators bone China and India curries no buyers. None of which is good for the commodity story but we will be posting on all of that tomorrow.

Finally TMM are suggesting that any thoughts of a "Grexit" should be accompanied by those of a "Gerxit". How about the rest of Europe default on everything they owe Germany, kick them out of the Euro and then print like crazy. That's what you do when you cant work out which of two scrapping schoolboys started it - send them BOTH out of the room.

---
Stop press- A friend of TMM has just sent in this. We are unsure as to whether it is his own work or an original from the estate of the, very sadly, recently passed away Mr Robin Gibb. Either way, we are very proud to present Robin Van Bee Gee doing the EU-

Well you can tell
By the way I use my fork
It's EU dinner time
No time to talk
Disputes loud , a massive storm
Problems kicked around
Since the Euro was born

They'll say it's all right, it's ok
We'll have more dinner in late May
Bury our heads in the sand
And all come up with diferent plans

(chorus)
Whether you're a Frenchman
Or whether you're a German
The Euro's barely alive, barely alive
Feel the city breakin
And everybody shakin'
The Euro's barely alive, barely alive
Ba, ba, ba, ba, barely alive, barely alive
Ba, ba, ba, ba, barely alive

Bunds don't go low, they just go high
And if they don't do either, I start to cry
Long wings of dollars, in the blues
Buying Facebook Puts, I just can't lose

They'll say it's all right, it's ok
We'll have more dinner in late May
Bury our heads in the sand
And all come up with diferent plans

(chorus)
Whether you're a Frenchman
Or whether you're a German
The Euro's barely alive, barely alive
Feel the city breakin
And everybody shakin'
The Euro's barely alive, barely alive
Ba, ba, ba, ba, barely alive, barely alive
Ba, ba, ba, ba, barely alive