Monday, 15 June 2015

EU playing 'Monopoly' but don't want the game to end.

Once again Greece took the headlines overnight with the longest game of 'Deal or No Deal' resulting in another empty box being opened. Tsipras has odds that really do look as though the board is covered with tiny payouts. The audience is screaming take the money yet no, he presses on in the belief that the jackpot is still available. 

Meanwhile news volume picked up overnight to a level that has drowned out nearly everything else in the markets. I offer my own chart of news noise, the Greek/EU news-o-meter. 

Whilst that is my own fun perception, here is a real analysis of Positive vs Negative news from my friend @thalesians

Greece is like a drug that we are adapting to where the market will need stronger and stronger doses to yield a reaction.  I do wonder how many long term players are still playing with their positions on the back of it all. We have been in this situation before and the worst that can happen is that the EU drop a few hundred billion EU. Which probably doesn't matter that much as they are the ones in charge of their own printing press. 

As we have seen with every other EU crisis, the policy makers' preferred modus operandi is the one so often used at the end of  game of Monopoly - the Monopoly life support gambit. This is employed when one of the players goes bust yet no one wants the game to end, so all players vote to allocate each player a fresh chunk of cash from the bank equal to an amount that will take the bust player back into operational solvency. OMT was just such a threat and EU QE is working example. It is being employed to bale out those that need it but also benefits those that don't need it, such as Germany. We end up with the EU game rolling on as bankruptcy is avoided, but the core problems of the discrepancies in relative wealth remain unaddressed.

The EU employ a simple default test, modeled on the duck test, to make sure that the game roles on -

"If it looks like a default, sounds like a default and behaves like a default... it's a restructuring of long term liabilities within a new framework"

Now back to market response to the news. Every morning when I wake I test out the old saying 'show me the charts and I'll tell you the news'. As I as I scroll through the markets I do a mental cross correlation and try to guess what news has broken to result in the numbers I see before me. It's really not that hard. 

Weekend news is somewhat different as we have it before the markets open, so in these cases the game is slightly reversed where we play 'we know the news, how far will everything have moved by Monday morning'. 

This morning I was guessing, not so much the number but the rate of change of the number, i.e. vol or the dx/dy gradients of the charts. European markets reacted as predicted; periphery spreads widening, equities falling, EUR/USD down and a general lesser knock on effect into global markets. So far so good.

Yet momentum fell dramatically later in the session and stabilised around London midday prices, indicating that the news has had it's impact and we can start looking for other pointers to play with. However we must bear in mind that those who did jump on the momentum trade who are now finding it harder to stay in without further price moves to pay for the position. We haven't had any. 

Meanwhile the US has just printed a stella housing number with the NAHB index up to 59. US equity indices have been steadily retracing upwards throughout the day. Which makes me think that the Greek news has done its worst and Greek news has been adapted to. One last glance at my news-o-meter would suggest that the next risk is for some good Greek news. 

1 comment:

CrazyDiamond said...

what are the charts that you'd look at every morning to test out the old saying? 10yr bonds across markets, equity indices and futures, EUR/USD, USD/JPY etc?

I'm trying to get that rigour and have a staple set of charts/markets to gauge the market everyday. Thanks.