Monthly Archives: August 2014

Timing the top.

Kobe Bryant

Kobe Bryant

The challenge of a life time. Now I know how Kobe Bryant feels, when his teammates hand him the ball with just a few seconds left on the shot clock. With no time left to create a better choice, he just has to get lucky on a miracle shot.  Financially speaking, after years of market manipulation -if not outright deception- by central banks, it’s really now, or never. Last chance to make big money with this new, last super bubble of the lot.

Oh yes, there will be a market after this top, but it will be an illiquid one, with limited chances of making big money. Cleaning up this credit bubble is going to take a long, long time. This next top is, as Warren Buffet would put it, the fat pitch we should have been waiting for. I know most batters have been swinging at pitches lately, and they made money with this market in the interim. Good for them; but I disagree with the risk-reward targeted. Risk didn´t materialize, but it was there all the time. Unlike in baseball, there is no penalty for being patient in investing. As I grow old, my patience improves daily. Nothing else does.

This top is going to be “the mother of all tops”. And it will come, as sure as night follows day. It is keeping me awake some very long nights. As Herb Stein stated,“If something cannot go on forever, it will stop.” ¿When? In order to get the three points from the Kobe Bryant last nanosecond shot (make money shorting the next market top), we need luck, and even then, a lot of aspects around the trade have to be perfect.  Two elements have to be right: precise timing, and determining if the first top will be in bonds, or stocks.

Of course, all aspects to consider, interact between themselves, in order to make things as complex as possible. The market is a bitch. First and foremost, precise timing is crucial. A correct predefinition of the macro aggregates to watch, simplifies the problem enormously (if correct!). Then there is noise to account for, and behavioral market player considerations. The POMO desks of the Central Banks manipulating everything they can, as much as they can, for as long as possible, are also to be considered. And it’s a dog fight. It will be their last stand in the current credit expansion. Continue reading

Rebelde con causa.

Tras un par de disgresiones intentando ganar algún dinero, vuelvo a la teoría económica. Admito que uno de los motivos de este blog, es mi hartazgo del papel de “malos de la película” asignado permanentemente a los permabears, agoreros, antikeynesianos, doomsdayers, antisistema, y un sinfín de cariñosas expresiones con que se nos caricaturiza a los economistas austríacos.

Helicopter Ben explica sus políticas, y los resultados esperados.

Helicopter Ben explica sus políticas, y los resultados esperados.

Sin perjuicio de reconocer que Paul Krugman suele indigestarme algún ágape cada mes, por no contar los dolores de cabeza que me ha provocado el amigo “Helicopter Ben”, lo cierto es que  no soy antikeynesiano radical. Admiro a algunos postkeynesianos como Hyman Minsky o Paul McCulley. Eso sí, de los enemigos irreconciliables, me quedo con Hayek antes que con Keynes. Pero Keynes aportó intuición e inteligencia a la teoría económica neoclásica, adaptándola al mundo real del que estaba alejadísima, por su eterno enquistamiento en los modelos reduccionistas con caminos óptimos en forma de silla de montar (y con discutible capacidad de autoequilibarse aun siendo necesaria para su validación -Ramsey).

Práctico, extraordinariamente inteligente, y agudo verbalmente, Keynes era lo opuesto a la elegancia matemática irreal (y lineal) de los modelos neoclásicos. Y aportó algo estupendo: un vademécum económico del uso y conveniencia del ibuprofeno (política monetaria) y el paracetamol (política fiscal). Estoy muy contento de que existan ambos fármacos, que he usado, con mesura, cuando convenía. E igualmente contento, de contar con herramientas de política monetaria y fiscal, cuando menos para no hacer las cosas al revés, como reducir la oferta monetaria en los tiempos de la gran depresión. Toda aportación que evite los daños de la ignorancia, es valiosa.

Algunos nacen con estrella, y otros nacen estrellados, como el rebelde paradigmático (este sin causa). Pobre James Dean. ¡Con lo guapo que era! En cambio para John Maynard Keynes, la suerte fue su aliada. Su éxito habría sido mucho menor si no hubiese sido contemporáneo del nacimiento del club de los banqueros centrales de occidente. Y qué suerte, que pocas décadas después de su muerte, se produjese el desmontaje del patrón oro en Bretton Woods. Lo primero le aseguró “brujos” que cuidasen de los brebajes sugeridos. Lo segundo posibilitó que los balances de los bancos centrales pasasen a tener una consistencia al tacto parecida a un combinado entre el chicle y el queso gruyere.

A ver si los rebeldes con causa tenemos más suerte que James Dean. No caemos bien. Cuando acuso a la ciencia económica, a los bancos centrales, al ignorante establishment político, y al interesado lobby empresarial, de “rancio keynesianismo”, no quiero denostar la eficacia de las políticas monetarias y fiscales. Solo quiero denunciar su uso y abuso en grado superlativo. Lo que hemos hecho con las recetas keynesianas, es como si, descubierto el ibuprofeno, hubiésemos cerrado los quirófanos del hospital y los hubiésemos mantenido así, un cuarto de siglo largo. El resultado sanitario no habría sido el deseado. Y el ibuprofeno no tiene la culpa.

Son los aprendices de brujo, que lo recetan sin cesar, los responsables del desaguisado. Nadie (salvo los estigmatizados austríacos) ha vuelto a estudiar el lado de la oferta seriamente. En cambio todo el mundo parece saber recetar ibuprofeno y paracetamol. Se usan para todo: tumores, virus, bacterias… Hasta los políticos pontifican sobre la política monetaria que debe implementar el politburó del BCE. Rajoy se manifestaba hace pocos días: ¡Marchando más dinero y más crédito por favor (que nos paramos)!

El síndrome de Don Mariano es conocido, y tiene protocolo médico reglado. Es una alucinación muy típica. Cuando tu único instrumento es un martillo, todo lo que ves te parecen clavos. ¡Pero no hay que ir martilleando todo el día! Como bien dijo Azaña, si hablásemos sólo de lo que sabemos, se generaría un inmenso silencio, que podríamos aprovechar para el estudio. Ojalá.

Los daños de la ignorancia: Imprimimos unos billetes aquí, ponemos tipos negativos allá, devaluamos la divisa, y regamos todo con mucha deuda (perdón, quería decir “crédito”). Al resultado que se logra con todo ello, en África, lo llaman espejismo. Ojalá fuese todo tan simple. Las recetas del Sr. Montoro desde luego lo son, pero en el sentido catalán, que tanto le disgusta, del término. Continue reading

Even more sex?

Well, it doesn’t happen all the time, but the EURUSD has performed exactly as expected since our last post.  And not only this pair; if you were short the Euro, you are “in the money” against most currencies. As I said then, it doesn´t get any better than this. The trade makes fundamental sense, and we have the POMO desk of the ECB covering our back. Sex has been good lately.

No overconfidence though. Nothing is really 100% foolproof, particularly in these turbulent times. Only two days ago, Saxo bank research came out with a long the EURUSD recommendation, with a target at no less than 1,40. Wow! I have great respect for them, and the rationale for the trade certainly makes sense. They think US interest hike fears are overblown. Most likely they are; but in my view, not to forget is the other side of the trade. The European growth scare is consolidating daily, and we are on target for the end of the year stagnation I suggested in “reading this and long time short the EURUSD”. Last figures show zero GDP growth for Europe in the second quarter (and likely coming down further in the third and fourth). Doesn’t look like the recovery everybody was expecting. I very much doubt the euro can withstand the dismantling of the growth prognosis now embedded in financial pricing in most of continental Europe. Some weakness looks unavoidable, even if we end up with a new “whatever it takes”, or similar wording, by super Mario. I think I will stick to the same sex partner (euro shorts) for the time being. A weak euro should help with some nice and reasonably safe sex over the next weeks.

Apart from our trade, Dollar longs and Euro shorts are the main theme in currency crosses. I am less certain of the longs. After all, the Fed is still a glamorous acronym for a bunch of money printers that have promised to abandon their addiction beginning tomorrow … or the day after. We have to remain a touch skeptical. Add the fact they don´t like the dollar to appreciate, because they are aware of the tightening of financial conditions implied by currency appreciation. Tightening is still anathema at the Fed. They fire you if they find out you ever dreamt of it.

Last in the main currency arena, the yen is a gambling choice. The country is bankrupt and sports sustained commercial deficits as a new part of the economic landscape. But it is also a large creditor, and still considered a safe haven by a large mass of ill-informed investors. Beware of behavioural economics. Millions of idiots can alter the investment outlook for “longer than you can stay solvent” (oh yes, I have something in common with J.M. Keynes).

It does makes sense to short the yen (long USDJPY) only if combined with a S&P500 futures contract short. “Risk on”-“risk off” wise, it balances out the trade, making it theoretically neutral to both scenarios. It is indeed difficult to imagine JPY appreciation combined with S&P500 further increases to the 2000 to 2250 area. Be careful with sizing both sides of the trade adequately: in most trades the devil is in those details. Timing the entry levels is tricky as well.

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What about some sex?

Okay, I have to admit it. Lots of posts about economic theory lately, but no sex in my blog! In economics, sex is money. And making money is undoubtedly sexy. But I stand for safe sex. ¿Is that financially viable now, without subscribing to the “common knowledge game” (and its implied risks) ?

I’m starved for sex, but don’t want to risk my capital. Return “of my money” versus “return on my money”, comes to me as a priority nowadays, and that’s not a constructive starting point. Courtesy of the large central banks (via ZIRP and NIRP), there is no safe sex available any more. And the way things are going, sex won´t be free either. In a couple of years, “one way or another”, as Blondie would say, capital controls are coming. Spain is tentatively introducing some back door regulations in this area.

For now, sex is free, but risky. We live an investment era where making money implies risking capital big time, even if that risk has not materialized until now (due to the global central bank “put”). I’m fed up with the situation. Macroeconomic musing is nice, but it’s not a real substitute for the hard core thing. I’m not going to fix the global economy, whatever I write, so I might as well engage in the sexier task of money making. If, and that’s a big if, I can.

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