Week in Review

Posted on October 23, 2011 by macromon

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Ray Dalio on Charlie Rose

Posted on October 23, 2011 by macromon

A must see interview for anyone interested in global macro with Ray Dalio of Bridgewater Associates, the world’s largest hedge fund.   His key points:

There are three big themes driving the global economy:

1)  deleveraging;
2)  monetary and fiscal policymakers are “out of bullets;”
3) political process, not just in the U.S., but globally, is totally broken;

The world is divided into two parts leading to huge global imbalances:

1)  debtor developed countries;
2)  emerging creditor countries;

Click here to watch the full interview.

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Is the Euro Driving the S&P500?

Posted on October 22, 2011 by macromon

In case you haven’t noticed recently the Euro and S&P500 seem to be moving together almost tick for tick.   Here are the daily moves in futures over the past month.  Makes you think they’re both dancing to the same tune by the Algorithmics, no?

P.S.  It doesn’t look like the first day of the Euro “summit to end all summits” went well. Let’s hope the Euros get it together or we’re all gonna be in a world of hurt.

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Posted in Black Swan Watch, Charts, Equities, Euro, PIIGS, Sovereign Debt, Sovereign Risk | Tagged , , | 1 Comment

Losses expected for holders of Greek debt

Posted on October 22, 2011 by macromon

Do they mean banks need to write down or reserve against their Greek bonds by 60 percent or is it that bondholders will reduce their claims on Greece by 60 percent?   We are not confident that the EU policymakers know the difference.  That was clear after the first “private sector involvement” deal was concocted and one reason why the markets lost confidence in the Eurocrats, in our opinion.   Click here and here for an explanation.

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Global Trend Indicators

Posted on October 22, 2011 by macromon

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Models. Behaving. Badly.

Posted on October 21, 2011 by macromon

Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

Emanuel Derman  is a South African-born academic,[1] businessman and writer. He is best known as a quantitative analyst, and author of the book My Life as A Quant: Reflections on Physics and Finance.[2]

He is a co-author of Black-Derman-Toy model, one of the first interest-rate models, and the Derman-Kani local volatility or implied tree model, a model consistent with the volatility smile.

He is currently a professor at Columbia University[3] and Director of its program in financial engineering, and is also the Head of Risk and a partner at Prisma Capital Partners, a fund of funds. His book My Life as A Quant: Reflections on Physics and Finance, published by Wiley in September 2004, was one of Business Week‘s top ten books of the year for 2004.[4] His forthcoming book Models.Behaving.Badly, will be published by Free Press in October 2011.    – Wikipedia

This is good stuff.  Take the time to watch the videos.   Money quote:   “In finance you can’t predict the future even to one decimal place…..[if you could] there would be no need for markets.”

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Posted in Economics, General Interest | Tagged , | 1 Comment

Night Sweats of a Money Manager

Posted on October 21, 2011 by macromon

With about 40 minutes of trading, the S&P500 has pierced its 1230-33 resistance (which includes the 100-day moving average)  though has come in a little from its morning high.   Closing above the 100-day at 1232 will be an important win for the bulls.   Lots of performance anxiety out there in the under invested crowd.

Here is a great quote from a money manager/trader we know well,

The systemic fear of going down with the ship keeps you on shore.   You wake up one morning and find the ship has left dock.  You jump in and try to swim to catch the ship and almost drown in the choppy waters.   All while thinking you’re not sure if the ship will eventually hit the iceberg that kept you on the shore in the first place!

Miss the boat and if stays afloat for six months, in the words of Donald Trump, “you’re fired.” 

Couldn’t capture the frustration and fear of missing the boat here any better.   And the longs are worried that this may be a bull trap.   That’s part of the reason why markets are  so volatile.  Nobody knows for certain what the future holds and that is what makes markets.

The levels to watch on the upside for the S&P are today’s intraday high of 1239.03;  1243,  .618 fib retracement of August-October sell-off;  and 1257.64, the break-even for 2011 and level where money will be forced in.  The 1274.67, the 200-day, which will probably be slightly lower by year-end.  Stay tuned.

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Posted in Equities, Global Stock Performance | Tagged , , , | 1 Comment

Europe’s Undercapitalized Banks

Posted on October 20, 2011 by macromon

We’ve posted several pieces recently about Europe’s over banked and undercapitalized financial system.   The markets have pounded European bank equities this year and forced the eurozone political leaders to cobble together a bank recapitalization plan, which we all wait for on pins and needles.

No other chart illustrates the vulnerability of European banks than the following.  We use the simple common equity to total asset ratio,  which excludes the risk weighting of assets and tiering of capital.    It may be too simplistic and distort cross-country comparisons, but it is certainly revealing,  if not shocking.   The bank recapitalization in Europe will be a difficult task and it’s no wonder they need more time to reveal the “plan.”  Stay tuned.

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Posted in Black Swan Watch, Charts, Euro, General Interest, Geopolitical, Sovereign Debt, Sovereign Risk | Tagged , | 4 Comments

Margin Call in Theatres Tomorrow

Posted on October 20, 2011 by macromon

And maybe to a market near you if Merkozy can’t get it together………

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Posted in General Interest, Video | Tagged , | 3 Comments

Industrial Commodities Swan Diving

Posted on October 20, 2011 by macromon

Take a look at  copper,  lumber, and rubber.   Down big.   What does it mean?   No doubt a reflection of a slowing global economy and confirms the contracting manufacturing PMIs in many of the emerging economies.   Hard landing in China?   Don’t know but makes us more vigilant.  Stay tuned.

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Posted in Black Swan Watch, Commodities | Tagged , , , , | 2 Comments