Calm, Always

Over the years we have found that it is imperative one remain tethered during a whirlwind. Not that we know how the Greek deal will evolve; we don’t but we do own something of value and it is not to be lost due to a distraction, even one of this caliber.

Aside from a US curve trade (now back to entry levels) we have the luxury of being on the sidelines.  We have recommended very few trades past weeks exactly due to the EU wild card.  Others with more insight, a handle on matters over there, no doubt have done much better than we but then we know our limitations.

So it may not be the time quite yet to act on our anchors, but these are anchors nevertheless:  Growth in the US, Canada and UK will push through estimates, Q4, Q1.  We can look for growth in Germany to come inside of expectations, same period. Key - We are speaking of relative relationships, not absolutes.

For example, there is a flaw to consensus regarding UK growth ahead. This, when coupled with the expanded Bk of England operation is what motivated our very successful early October trade. We then advised exiting the last portion of that trade on Oct/28 after considering the recent CBI report (which showed manufacturing optimism dropped to the lowest level in 2 ½ years).  Then today we see Manuf PMI results far south of expectations, especially new orders.

Yet under no circumstances do we want to look to sell this spread.  Past two days it has come in considerably (2 - 10, +169, vs +202, Oct/28 / 10yr 2.21 vs 2.62) tagged to quality flt.  Fine.  We want to again look to own (L - S) the UK curve not only because of the Bank of England firing, but because we expect further cheer from the Administration, for example, the streamlining, or outright removal of regulatory and tax retardants. This is not priced in at the moment, and, this consideration will eclipse any perceived or real manufacturing weakness.

We expect the market crowd to come to agree with us; we encourage clients to set trades accordingly when the time is right.

In the meantime, back in the colonies, continue to look for a very active consumer.  This week’s chain store sale results will cooperate with that view.


Robert Craven