Tuesday, 29 July 2014

Russian Sanctions - Part II

Putin laments his last Big Mac and discusses the future production of the BigPutin.

So the EU have unleashed the big sanction guns and though they are treading a fine line between moral rectitude and punching themselves in the face, it is a big step forward from the UK's Nick Clegg wanting them removed as hosts of a future football competition. I have long held the opinion that 'one should only worry about things one can change', but with Nick Clegg that can be extended to 'only worry about people who can change things'. So he can be ignored.

Sanctions normally spawn a rash of media stories of unrighteous suffering that some may incur but in general we could be pretty safe in assuming that sanctions could get pretty sneaky and there are bound to be some major unforeseen consequences. Here are some suggestions or predictions of future silly actions and their consequences.

Russia bans the import of artisan goods from London’s Borough Market causing prices to fall from 'eye watering' to 'expensive'.

Russia and France ban Russian superyachts from Monaco both thinking wrongly that the other will suffer most - Monaco goes downmarket and looks to Magaluf for guidance.

London Borough of Chelsea bans Russian hookers - Lots of wives are surprised to see their husbands home early from work.

Brussels follows its solar panel tariff idea and places a minimum charge on Russian hookers of $5000 - The clientele of Porto Banus moves even more upmarket in wealth but even more downmarket in taste.

Russia bans Russians from working on Investment Bank Emerging Market desks - Mass confusion erupts trying to work out what has gone on in their books causing more regulatory fines to the glee of western governments.

The French sue US banks who have Russian quants working for them (most of them) for $10bio each - Well there has to be some retribution somewhere.

US closes all McDonalds in Russia but dangles Big Macs teasingly from US embassy windows - The world sees the introduction of the world's largest yet most inefficient and unwieldy burger - The BigPutin

Russia bans export of all website software created in Russia under white-labeling to rip-off UK design agencies - 404 errors appear on most advertising agency websites and there is a scramble for 'html for dummies' books.

VW remotely reprogram all Russian sold Audi and VW sat-navs to display an erect middle finger - Lots of Russians misinterpret this as a signal to drive straight on and accidentally drive into Ukraine causing the West to believe an invasion is taking place.

Russia sells all Russian owned UK property simultaneously - Half of the UK population cheer, the other half cry.

Russia market Chernobyl (in Ukraine and so not sanctioned) as a Centre Parcs alternative, at 1% of the price, to low IQ gullible Brits causing all British watchdog bodies, holiday regulators and personal litigation firms to blow up due to huge apoplectic overload.

The UK's Vince Cable bans all companies ending in -ski crippling the winter sport industry.

Courchavel in the French Alps declares independence from the EU and instantly becomes the world's richest nation.

US ban Sikorsky helicopters forgetting an important point.

UK bans supplying Moscow arms - The Moscow Arms pub in London runs out supplies and has to close.

Thursday, 17 July 2014

Yellen Yell to Sell

As we teeter in the Bradley Sideorgraph market turn period, Yellen's yell to sell has been joined by an upswing in Russia/ Ukraine hostilities, together with further US sanctions against Russian companies, Portuguese banks and the usual concerns of overvaluation that Yellen has only added voice to.

Yet Yellen's comments were particularly aimed at the tech and biotech sector, warning that P/E levels around 100 are risky. Too right they are, but raising interest rates by a percent or two is going to have minimal impact on these stocks as the reasons folks buy them at stratospheric P/Es are based upon hope about the future and dreams of rapid profits. If it was about interest rates these sort of stocks wouldn't have even got through IPO.

To that extent Yellen's concerns are generic and are not under the control of the Fed. Raising interest rates doesn't stop people buying lottery tickets.

One comparison that is being made is that between Yellen's latest comment and Greenspan's "irrational exuberance" speech of Dec '96.

The first thing to note is it took another three years of irrational stock exuberance before it all came tumbling down in March 2000. But it was different then wasn't it? Greenspan cut interest rates in the intervening period rather than raising them. As my old friend Macro Man points out, we now have a young generation of traders who have never experienced rising interest rates and what it does to market's so they will be in for a shock.

But that new generation has also be conditioned by tail risk. Like young lads sent to the front, they are all shell shocked and nervous as hell having been led into battle and taught by, tail risk glory hunters who made their killing in the Global Financial Crapout and subsequent Euro campaigns. They are programmed to look for tail risk. The condition they are not programmed for is irrational exuberance.

Though BAML have issued their Fund manager survey ( see a great run through here on GlobalMacroTrading) I guess what we need is data on how leveraged markets are in long equity positions vs 1999 (any help appreciated). It's leverage that kills and I don't believe anyone is mortgaging their house to buy stocks just yet, more likely the reverse - they are selling their stocks to buy a house.

Wednesday, 16 July 2014

Beware the 16th of July.

It's that time of year again where my most mythological of turn dates appears. The 16th of July.

As I have written before under the TMM banner, Beware the Humphry Hawkish of July . But this 16th of July is even more special as a turn date for we can add some hockum pockum astrology to the equation.

For today is the biggest turn day of the year so far for the Bradley Siderograph and interestingly the next biggy is 20th Nov which rings a bell as another regular event turn week. Let's Thanks Giving for that.

Not much to go on, but combine that to a full moon and a positive response to the Humphrey 'Hawkish' testimony and we may be about to see a change of mood. Now the big question is a change in mood from what? The distribution of opinion is very much bi-modal rather than normally distributed at present, as indicated by the lack of response to questions on equity direction that yield 'hang around here for a while'.

This writer is too keenly aware that the last 2 months have seen a definite trend higher that these sort of change dates should normally reverse.  But there is conflict as he is also still happily thinking that the next move is higher and would be delighted if todays 16th July is the start of a massive move in that direction. Especially as we have just had another failed test lower.

So still playing the 'onwards and upwards' into a rarified atmosphere of equity valuation nose bleed and bear bleed territory. All the better for an ultimate Baumgartning from. But not yet.

I get the feeling that being an equity bull carries the same social caché as saying you vote UKIP.