While the newsflow continues unabated, market engagement remains tepid at best; as noted, many punters (and banks) seem content to limp into year-end.
The latest development from the US is, unsurprisingly, a broadening of the firms angling for a piece of the bailout pie. Yesterday AMEX filed to become a bank (and thus receive some sweet, sweet TARP lovin’), while Nancy Pelosi wants to divert a chunk of funding to prop up the US automakers.
Jeremy Clarkson’s love for the new ‘vette notwithstanding, it’s not difficult to come to the conclusion that most of Detroit’s offerings are uncompetitive in the global marketplace in terms of quality…and that’s before you factor in the pricing disadvantage that comes from the Big 3’s defined benefit liabilities.
Macro Man understands the political realities that make the bailout of Detroit an inevitability…but it does make him wonder where the line is drawn. Banking, insurance, real estate, financial services, autos….which industry is next in the queue for government handouts?
McDonald’s (to ensure a ready supply of cheap, if unhealthy food, for the nation)? Televangelists (to ensure a ready supply of prayers on behalf of the nation)? Major League Baseball (MLB has a long and proud history of gorging at the public trough to pay for stadia)?
Macro Man doesn’t know which industry is next in line, but he does know that the list of extended hands is growing by the day. As an exclusive to MM readers, he has managed to secure a photo of the queue to receive public funding through the TARP. Should you wish to apply, he’s afraid you’ll have to go the back….
But hey, enough of pickin’ on the old homeland. While it’s easy to blame the state of the economy and consumer confidence on the government and greedy Wall Street bankers…how does that explain the collapse of confidence elsewhere? Take Japan, for example….where some leading indicators are actually pointing up, the government is, well, flaccid, and finance a go-go hasn’t been seen in nearly two decades. Yet consumer confidence has collapsed there as well. And the goings-on in Russia seem to have re-directed the market’s attention to the fact that when the shit well and truly hits the fan, you really need to hold the world’s reserve currency. After yesterday’s “band widening” of the Russian basket, CBR reportedly burned through at least $8 billion of reserves yesterday.
Meanwhile, the DXY has broken through the top end of a wedge formation, suggesting further impulsive near-term gains for the buck. Clearly it’s happening against some of the weaker currencies out there; USD/TRY, for example, has rallied 11.5% since last Tuesday. With EM looking wobbly and stories circulating of yet another round of hedge fund redemptions in the pipeline, the market certainly feels as if it is short of liquid USD assets. Macro Man has added some tactical risk in some of his favourite EM short plays as a result.
The lack of flow information notwithstanding, this dollar does feel as if it may be poised to make a step-adjustment higher. It’s almost as if embedded dollar shorts ask their banks how they can buy some and, by way of reply, are told to “get in the back of the queue.”
Originally published on November 12, 2008 at Macro Man blog and reproduced here with the author’s permission.