Saturday and Sunday nights are now reserved for reading and research. My work-a-day routine has taken a turn for the worse with a new assignment, perhaps the worst in my military career. Much more busy than before, but with nothing to really do but go through the motions and hope for the best. By far the least challenging, least rewarding assignment I’ve ever had, with perhaps the least constructive guidance and the most uninspiring and disinterested leadership.
It could be a deal breaker for me — once the organization you trust and love turns its back on you, with the cold shrug of institutional impunity, it’s time to move on. (I believe the term used in the familiar patois of my organization would be to “suck it up”. I never “suck it up” for very long. I’m not that kind of Marine.) To be fair, the USMC has invested a significant amount of time and treasure in me…all the more reason for me to wonder why it seems so passive about this investment. I took it seriously. I believe I’ve demonstrated this amply. To no avail. On a personal level, a colonel has made a deliberate decision to sacrifice my career in order to satisfy a temporary but non-urgent requirement. (We have a phrase for that: “Needs of the Marine Corps”.) So be it.
I try to remind myself that this is what happens in any large organization, when the bureaucracy tends to sacrifice purpose and creativity to process and procedure at precisel the wrong time for a useful asset. Despite the logic and actions of the individual who has condemned me to this posting, perhaps I’m after all just a number, a statistic, a check in the box, a code on some staffer’s spreadsheet back in Quantico or DC. Perhaps my perception of my own value to the organization is overestimated. Nobody is irreplaceable, after all. There are more than 200 thousand people in this organization now and its strategic focus has been stretched in unprecedented ways. Not surprising that a few of us who were once promised bright futures should languish in the inertia of what is still a government agency trying to find its way in “uncertain times” — whatever those may seem to be to the decision-makers.
Anyway, the point is that I’ve had to sacrifice a bit of personal time to maintain my commitment to what has become a passion. It is a bitter pill for wifeykins, but she is on board as long as I am careful and don’t overstretch. I’ve been in tighter spots before. I know I’ll succeed. I will balance family, friends, profession, person and passion once again. With a little moto riding and maybe some lolcats surfing in between.
Enough of the throat clearing. The markets seem nervous. We seem to be in the eye of the storm right about now. Winds have abated. The sails are slack. The tell-tails are fluttering in no particular direction. The skies seem clear, but there is an uneasy pressure and smell in the air. The light is a bit strange. “Not quite right,” as wifey would say. Ambient noise seems oddly attenuated, muffled. What will happen to the USD? What will happen to equities in the US, Europe and Asia? What will happen with crude, gold and ags? Where are the funds? Where is the real money? What is following what? Who is following who? We know the other side of the storm is coming. What will be the best course of action?
As for the who part, I think hedge funds are following the real money. In the US markets, the funds are late to the risk party and will probably get hammered (again) unless the rally extends through the end of the year. Bravo to those funds who were winners. This has been a tough year for them and we aren’t even on the final lap yet. Most of the flows are still moving out of USD and US equities to MOE — markets other than Europe. This is one of the reasons I added to the short EURUSD trade — because the flows certainly aren’t going into Europe as far as I know. There is little yield to be had there and risk aversion trading will gain substantial momentum starting in October, if not this coming week, and continue into 2010. Probably helpful for my EURUSD short, but not very much for the USDJPY long, as another unwinding of too hastily taken young carry trades will benefit both USD and JPY. Probably the former less than the latter. But when will this unwinding occur? And then at what level will it be good to get back in? (Note to self: Watch NZD and AUD, as well as treasuries.)
I would like to build a large-ish short ES position in the 1180-1100 area, but I think I’ll stay tactical for now because markets usually tend to move further than any rational explanation would allow. (One of the principles behind the Knotty positioning strategy, but I’m not well capitalized enought to execute this strategy in the futures markets and would get a margin call holding ES over a several thousand tick range!) My expectation is that the S&P could move as high as 1150, but that it will eventually retrace to 750 at least. I may also take tactical shorts 6E over the same time horizon. But what about the yen? This is what I’m trying to make sense of at the moment.
FM Fujii has made some careless but revealing remarks, and I like them. Letting economic conditions determine the value of the yen more than narrow interests and cronyism would allow me to get a better feel for general direction. Time will tell if Hatoyama’s regime can make it a reality. I don’t think Fujii’s remarks mean the yen will appreciate to wild and wacky levels, but I doubt the yen will weaken much in the near term. We certainly won’t see 100 anytime soon. (I’m still hoping for 97.40, however.) And then there is the meeting between President Obama and President Hu ahead of the G20 meeting. Both are very formidable minds from very different intellectual spaces. Wish I could be a fly on that wall. In any event, I’ll be paying attention to the buzz around that meeting.
Leading indicators coming out that will put that meeting into context as well. I’m interested in what the Fed will say about an exit strategy — or what it won’t say. I can’t imagine the Fed will extend QE much more. I just can’t imagine it. Seems something would snap. The G20 itself will probably be a sleeper. The sideshows during and after will be interesting, however. Probably lots of the typical BS from China, Russia and Japan and lord only knows from who else. And of course, our own brand of it here in the US — hard to tell which branch of government is more full of it, these days. Most of the stink will probably be about trade. China’s predatory practices vs. our protectionism, is how the MSM will probably frame it. In reality, it is China’s predatory practices and its protectionism, vs. our protectionism. This is why the US and others will have no choice but to do what they do. China itself has no choice. It cannot develop internal markets fast enough so it must engage in predatory trade. Financed by our debt. It is a matter of survival for China’s regime, which has no intention of letting go of power. I digress. Any progress between Obama and Hu in the meetings ahead of and after the G20 session will be good for risk appetite. I’ll be watching for that from a tactical standpoint.
Check out the remarks made by Almunia with respect to Chinese diversification into the euro. To sum up: “No bueno.” Developing…
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