Monday, 25 January 2016

What next? Fade the ratings

Before anything else, here's today's 'Alex' cartoon from 

Not much news apart from 'price is news’. The German IFO missed but is still on a healthy 107 handle but apart from that not much. With little news to talk about the first thought that jumps to mind is ‘don’t short a quiet market’ but when 'price is news’ to the extent that it has been over the past three weeks the news may be quiet but that doesn’t mean the price need be. More importantly in the ‘price is news’ inputs, China markets did not rally - they fell again. China is the missing link to this being a proper market turnaround. Yet the mrket commentary is beginning to resemble a bottom ibeing in as much as long term arguments for selling that were used as short term arguments for shorting are now being pushed back to long term again. We saw this with Europe during it's demise where shorts were justified as 'now'was pushed back to 'one day' with respect to EU collapse yet all those short PIG Sov bond possies were anhiliated none the less. So it is with the rcurrent recession calls. One day you may be right but the ammo we have to make that call right now is much more subjective than recent price action deserves so we have plenty of time for things to shake off the current doom. This is very much like any January. It was only a year ago that Greece was meant to take down Europe.

Without news, we are left with mood. A big big down followed by a big up leaves both camps with arguments for them being right and whilst I am in the ‘up’ camp, the bounce we have had has been impressive enough to drive models out of positions and leave the current status in limbo. I’m working a low probability call that we see more down today and then tomorrow it’s up again. ( 'it' being anything that has dumped since Jan 1). But in general today is a tussle day.

In minor other news, ratings agencies have downgraded oil stocks and it was bandied around as another reason to be gloomy, but I don’t think I am alone in having built a mental picture of S+P and their ilk being a bit of a joke when it comes to stating the bleeding obvious. I had wondered if their complete uselessness as a tradable indicator could be measured and was very grateful to @zatapatique for furnishing me with this little nugget. It’s the price behaviour of CDS, the market’s pricing of insurance against default, in the run up to and then after an S+P upgrade or downgrade, marked as 0 time. The original paper is here

As we can see the market prices have started moving long before any S+P move and the ratings change tends to mark the extreme. So it was most apposite to see the S+P moves in big oil firms tie in with their base and meteoric rebound

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