JS Global Macro Notes

[darkhorse]

Leeson: Rogue trader culture is more rife than ever

http://www.independent.co.uk/news/b...r-culture-is-more-rife-than-ever-8010312.html

Nick Leeson, the original rogue trader whose actions led to the collapse of the venerable Barings Bank and to a six-year prison sentence, yesterday warned that the culture of the City has spun out of control.

With banks reeling from numerous scandals and the London financial district under intense pressure to reform itself, Mr Leeson said that unless punishments are increased traders will continue to run amok...

 

[darkhorse]

Investors seek out safer shores

http://www.nytimes.com/2012/08/07/b...inancial-safe-havens.html?partner=rss&emc=rss

Government bonds issued by the United States, Germany and Japan are still the primary havens for scared investors around the globe. The demand has pushed down the interest rate on the 10-year United States Treasury bond to record lows around 1.5 percent. But investors have begun to worry about holding too many Treasury bonds as other safe alternatives dwindle as a result of the economic troubles sweeping the globe. This has led many investors to places that used to be on the fringes of the investing world like Norway, Sweden, Canada and Australia.

 

[darkhorse]

Recalibrating Europe

As Bespoke points out, the rally in Europe has dwarfed the one on our side of the pond.

This push has arguably been more about a recalibration of the eurozone's survival prospects. Tipping the scales toward "definitely pull through", coupled with better than expected jobs news etc stateside, has been enough to fuel a bear-squeezing risk-on rally that is now showing meaningful breakouts from various bases and ranges (emerging markets and money center banks as two valuation compressed examples).

The push thus makes sense in terms of short to intermediate term macro, vis a vis the lifting of a great psychological weight (followed by euphoria response).

But intermediate to longer term macro remains as dark as ever, re, likelihood of deteriorating corporate profit margins, China hard landing (with subprime icing), diminishing gains from cost cutting, etc.

Call it a welcomed burst of sunny weather that could run from days to weeks, maybe even a month or so, before serious stormclouds re-appear.

p.s. The above also underscores why investors are so bad at shorting, and why an investment approach to the short side is so fraught with danger. You have to be tactical and nimble when you short, only holding trends and pressing bets as profits accrue - a willingness to sit there and endure growing losses just doesn't work (unless you are running a structured negative carry position, which comes with its own issues).

 

[darkhorse]

This rally is supposed to feel solid. The wide range of breakouts, including E.M. and money center banks, should be positive confirming.

The bulls should be asserting control here, via price action, and logical theories as to why pressures are bullish in the short term.

But still, it just doesn't feel quite right... on the bottom up level, finding many attractive short setups and very few longs. The kind of short setups that pay off when a very rickety upmove collapses on itself.

In addition to all the above, if the euro giveth and the euro taketh away, EURUSD is a warning light at 50 EMA resistance.

This whole thing could yet crap out. Will get meaningfully short today (with very tight risk points as usual) if it does.

 

[kinggyppo]

Quote from darkhorse:

Thanks for that article.

The big boys have been treading water for years, eking out t-bill like returns and living off the management fees.

The problem has just been exceptional amounts of hard-to-quantify risk. How do you handle markets that can scream higher or lower via random statements from a third-tier European politician?

At the same time, the "big questions" all seem to be in Schrodinger's cat mode. Recession or global growth? Inflation or deflation? Eurozone survival or eurozone breakup? Yes, no, nobody knows.

It's just an epically shitty time to be running huge sums in the classic macro style. What these guys are best at is finding opportunities to make large asymmetric bets WITHOUT taking on a large degree of risk.

There are gamblers that win, but you see what happens to them. Paulson is a riverboat gambler at heart, something that was made clear early on. Look how he's wound up. The genius from JAT capital, whose huge bets are killing him this year. Kyle Bass, another subprime winner, betting huge against Japan and now that too-big-bet is squashing his returns. I'm betting that Chase Coleman, the multi-billion-dollar Tiger cub who killed it in 2011 going long out the wazoo on social media stocks pre-IPO, is the next big thud.

So instead of the ballers who gamble and either win big or lose big, seasoned old pros like Jonesy, Bacon, Kovner etc (though Kovner is retired now) keep their risk small and cards close until they can find great opportunities. There just haven't been any in this central bank dominated, fucked up government intervention fest we call a market. I don't blame Bacon at all for giving capital back.

Re, a fund strictly in U.S. stocks, that depends a lot on the style. Short-term trading, value investing, special situations, merger arb, quant, HFT, a mix of various... capacity depends more on strategies than asset class. Though I would say as a general rule guys with $100 million or less can still do pretty okay.

good post.....

 

[darkhorse]

France is screwed (by this man)...

Indigestion for 'les Riches' in a Plan for Higher Taxes

http://www.nytimes.com/2012/08/08/b...x-rate-is-passed.html?_r=2&hpw&pagewanted=all

The French finance ministry did not respond to requests for an estimate of the revenue the tax might raise. Though the amount would be low, some analysts note that a tax hit on the rich would provide political cover for painful cuts Mr. Hollande may need to make next year in social and welfare programs that are likely to be far less popular with the rank and file.

In that regard, the tax could have enormous symbolic value as a blow for egalite, coming from a new president who has proclaimed, "I don't like the rich."

"French people have an uncomfortable relationship with money," Mr. Grandil said. "Here, someone who is a self-made man, creating jobs and ending up as a millionaire, is viewed with suspicion. This is big cultural difference between France and the United States."

~

So basically France's new socialist government has vowed to implement a soak the rich tax plan (75% top rate) that they KNOW is not likely to raise revenues... or to be worth the implementation cost... but they are doing it anyway, to score political points.

While the community of French millionaires likely to be affected by this tax is rather small - and even then many will pack their bags - the larger knock-on effect will be on all the international business entities, French and otherwise, who look at these moves and say "Expand in France? Set up shop in France? Hell no."

The value of job creation via entrepreneurial innovation, business expansion, market leadership? Nah. They'd rather live in the dark ages...

 

[darkhorse]

Interesting from Mark Hulbert:

More bulls now than at May 1 market peak

http://www.marketwatch.com/story/watch-out-for-a-correction-or-worse-2012-08-08?link=home_carousel

There is a lot of chatter about how bearishness and fear are overdone here, with some justification drawn from a read on the AAII sentiment survey. But the AAII survey has a pretty weak composition if I recall correctly, and Hulbert's observations seem to counter:

Odds of a stock market correction are now quite elevated.

That's because stock market timers are now more bullish than they were at the May 1 bull market high, even though the market averages are still slightly below those previous highs. This is not good from a contrarian point of view...

 

[darkhorse]

China export growth has "collapsed" according to Bloomberg:

http://www.bloomberg.com/news/2012-...rts-rise-1-vs-economists-estimate-for-8-.html

China is a monster implosion waiting to happen. Still convinced short AUDUSD could turn into a trade-of-the-year candidate when all of China's stupid policies (like recreating conditions for a subprime bust, noted earlier in this thread) catch up with it.

Also interesting via ZRH, trading volume last 4 days = lowest in 5 years:

http://www.zerohedge.com/news/stocksmustclosegreen-lowest-4-day-volume-5-years

This rickety-ass rally could implode very quickly.

 

[darkhorse]

Moving toward a new format to increase efficiency.

General stance is to respect the price action without deferring to it. Price action here is increasingly bullish, but it also increasingly smells like bullshit...

Read full 08-13 GMN here

 

[hughb]

Quote from darkhorse:

France is screwed (by this man)...

Indigestion for 'les Riches' in a Plan for Higher Taxes

http://www.nytimes.com/2012/08/08/b...x-rate-is-passed.html?_r=2&hpw&pagewanted=all

The French finance ministry did not respond to requests for an estimate of the revenue the tax might raise. Though the amount would be low, some analysts note that a tax hit on the rich would provide political cover for painful cuts Mr. Hollande may need to make next year in social and welfare programs that are likely to be far less popular with the rank and file.

In that regard, the tax could have enormous symbolic value as a blow for egalite, coming from a new president who has proclaimed, "I don't like the rich."

"French people have an uncomfortable relationship with money," Mr. Grandil said. "Here, someone who is a self-made man, creating jobs and ending up as a millionaire, is viewed with suspicion. This is big cultural difference between France and the United States."

~

So basically France's new socialist government has vowed to implement a soak the rich tax plan (75% top rate) that they KNOW is not likely to raise revenues... or to be worth the implementation cost... but they are doing it anyway, to score political points.

While the community of French millionaires likely to be affected by this tax is rather small - and even then many will pack their bags - the larger knock-on effect will be on all the international business entities, French and otherwise, who look at these moves and say "Expand in France? Set up shop in France? Hell no."

The value of job creation via entrepreneurial innovation, business expansion, market leadership? Nah. They'd rather live in the dark ages...

Britain has extended invitations to the French millionaires who are going to get soaked to move to Britain.