Wednesday, 9 April 2014

Anorexic tails, beer bellies and a lost cow.


First something I am struggling with. Writing "I" instead of "we". As Team Macro Man we decided very early on that we would be "we". It inferred agreement and probably more importantly it implied that there was an august body sitting in reverential committee thrashing out all the pros and con and only delivering the distilled and vetted nuggets of true worth. Which of course was bollocks. Suddenly referring to the "we" in the singular "me" makes me very much aware of a loneliness of opinion and understand the reader's immediate natural assumption that the singular implies no checking, no validity and of course no value. It is perhaps for no better reason that writing in the third person or under a collective makes it easier to express off the wall and out of line opinion. But tempted as I am to adopt such strategy for my own comfort I will not. Yet. But if you find this blog being written by someone termed as "Polemic's therapist" then you can surmise that I may have caved in.

Yesterday was a tad painful at Polemic Towers as your author (see I'm nearly slipping into third person) decided 3 days ago that his cash on the sidelines should be gainfully employed again to usher in the new UK financial tax year. An overweighting to EM has not been enough to counter the short term damage in some of my old favourites, my own sacred cows (A theme Macro Man is running today). But it's early days and compared to the forced liquidation of long/short trades it has been but a flesh wound. But though we (no seriously that is a "we" as in you and me) may have seen many of the market's sacred cows slaughtered over the last couple of months then the unwind of the short Jpy long Nikkei trade is going to be more like the processing of a blue whale on a Japanese factory ship. It has to be the biggest and most comfortable trade that has been languishing on many a macro book and it feels like they have only just started work on the tail of that position leaving me expecting a good old shock and awe 95 handle on Usd/jpy before it's out.

Now talking about tails, it's probably worth looking at investment returns vs risk and expectation this year. I have touched on this before when writing in another place but 2014 is fast beginning to mirror a trait of 2013. That is one of mean reversion. We have had many potential market catalysing blow ups presented to us but after a week or two of predictable panic prices they have all pretty much reverted to where they cam from. UST yields are where they were a few months back, equities too, even emerging markets are OK and knock me down with a feather if the bete noir AUD/USD isn't back within its holding pattern of last summer and at its one year average. Basically Mr Shouty-Screamy has grown horse crying wolf as the markets are leaving the the normal curve Fat-tailers anorexic and mean reversionists with beer bellies. Those tails just ain't happening.

This leaves me wondering where the next reversion will come from, in a way I am looking for the last sacred cow in the field that is making like a tree and to my mind it's hiding somewhere in commodities. But I am late, the moves began at the end of March and it looks as though most of the herd of short commodity trades is already on the way towards hamburgers, being led by the short Aussie equity with short AUD$ trades. Bah..

So basically I'm on a commodity cow hunt and ask, "Where's my cow?".

All help appreciated.

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