Yesterday, Monday, was the day of the Big Bear Hunt. Whatever there might have been in out there in short positions got comprehensively run over an flattened. Having closed last Monday at 16,000.89 points, the Dow went out last night at 16,776.43 points which computes as a rally of around 5%. The iTraxx Xover Index, still the best measure of credit (over here) closed on Monday last at around 374 points and went out last night at 349½ points. The VIX, known as the fear index, hit a high last Monday of 40.74 points but closed yesterday at 19.54.
This is all fine and dandy if you were either lucky enough or smart enough to have loaded the boat on Monday last and were to have seen the very disappointing economic figures on Friday, – the NFP was accompanied by a distinctly modest release for September Factory Orders – had not panicked but had again bought the living daylights out of the market. In that case, by last night, you’d have been as rich as Croesus.
Chances are, however, that you were long going into the recent dip, struggled to get short, only to be walk straight into the bear trap in order to be topped, tailed, skinned and slowly roasted by the random volatility.
I cannot repeat often enough how devoid the general investor and trader community is of strong views and how the easiest thing to do at the moment is to jump on any movement, whichever way it is pointing, and to try to ride the momentum.
How many millions of IQ points and gazillions of gigabytes of computing power are needed to bring about this kind of outcome? Try to explain to a little green man from outer space that some of the finest brains of the last generation have assembled in the investment banks and asset management companies and that this near mindless chase up and down is the result of their collective efforts.
So we’re back to the game of buying the living daylights out of risk assets the moment the economy looks weak because we feel that we can rest comfortably assured that that nice Auntie Janet will make sure that money remains cheap. Injuries, my friends, are not healed by injecting the patient with ever more morphine.
Up, but still down
Glencore is all over the news this morning after some sterling buying and double digit gains. Just to add a bit of context, two weeks ago on Monday, September 21, the stock closed at 119.00p and despite being up over 20% yesterday it still closed below that level at 115.00p, the 10th lowest close in its history and still well below the 125.00p at which it priced its 1.31 billion share capital increase on September 21. There are 14.394 billion shares out of which 10.372 billion are in free float. I wonder how many of those are owned below the 115.00p closing price of last night and how many investors, traders or punters can say that their Glencore holdings are on-side? If the share price doubled today to 230p, it would still not break above the 200-day moving average. What’s that about even dead cats bouncing if you drop them from high enough?
Although asset prices have recovered sharply in the past few sessions, overall the risk asset markets remain a pack of dogs with fleas. That said, I am not one of the dark and veiled doom-sayers with respect to the overall global economy and I hope that I am joined by some of the central bankers when it comes to trying to distinguish between what the markets are howling from the roof tops and what the economy is calmly telling me down below. The last time the markets convinced themselves of the veracity and the benefits of a persistent and unbroken upward trajectory, we ended up with Bernie Madoff. Or was it Greek economic growth?
Wolfgang at the door
A propos Greece; the Ministry of Finance in Athens has published its budget forecasts for the next two years and is working from a base case of GDP shrinking (or “showing negative growth” if that linguistic nonsense floats your boat) by 2.3% this year and by 1.3% next. Accounting for ministries usually using rose tinted scenarios and hence chronically over-estimating economic output, things are not improving and Prime Minister Tsipras’ assertions that debt reduction will be inevitable ring entirely true.
Perhaps Tsipras did learn a thing or two about game theory from Yannis Varoufakis. In accepting all the terms imposed by the eurozone creditors and in getting them to sign up too, he can now ask of them to help him create an environment in which he can meet their conditions, one of which will surely have to be to shrink the debt burden to a size at which his full compliance with the terms enables the country to meet its financial obligations.
The arch enemy, German Finance Minister Wolfgang Schaeuble, turned 73 a few weeks ago and once he is gone, the debt write down negotiations can get under way. His age gives him all the reason he needs to step aside (or find himself stepped aside) before long, and the smoke and mirror machine can be dusted down again.
Waging doubts
Finally, an aside from an unusual source. The British Low Pay Unit, a charity supporting the rights of the lowest paid workers, has questioned the wisdom of raising the minimum wage to what is regarded as the living wage. It points out that many small businesses which employ armies of temporary staff on the minimum wage might not be strong enough to pay more and that the might either cease hiring in the numbers which they do or, in extremis, cease trading. Food for thought and surely not what the Jeremysaurus would have had in mind.
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Alas, it might not be that time of the week again but for me it is that time of the year. It is now exactly three months since my accident and I am picking up on a missed trip Down Under to pay a visit to my dear friend Alex “Moff” Moffatt of J. Palmer & Sons in Melbourne and hopefully to meet the other six educated Australians. No doubt a few “chilled tinnies” will bite the dust. I shall be reporting back for duty during the week of October 19. Part of the up-side of this destination is that Melbourne is hard core Aussie Rules country that and down there practically nobody is aware of or particularly cares about the Rugby Union World Cup. Phew!
