How bad is it out there? Global finance resembles nothing so much as an enormous, multi-car pile-up, the kind that blocks traffic for many miles behind and even slows the flow of traffic flowing the opposite way as drivers slow to gawk and rubberneck.
Credit guys, who have experienced the goriest scenes for most of the past past fifteen months, can now stare at the commodity guys with a weary “been there, done that” mien. The commodity guys, who’ve lost more money more quickly than they ever thought possible, are now looking at the EM guys with and thinking “betcha didn’t think it could happen to you!” And no doubt the EM guys are watching the equity guys scuffle. 30 S&P points in five minutes into yesterday’s close? Child’s play when you have endured the red-hot crucible of Russian equities or the Brazilian DI curve.
Here in Europe, perhaps the market development that’s been the object of the most rubbernecking has been the ongoing VW/Porsche fiasco, as highlighted in a few previous posts, including yesterday’s. Yesterday’s price action in Vee-Dub was truly awe-inspiring, however, as the price of the common stock rallied nearly 300% into yesterday’s close before falling back slightly. By itself, the stock added nearly 3% to the returns of the Eurostoxx-50, according to one to Macro Man’s sources. Early quotes this morning have it doubling again.
And oh, by the way. VW preferred, which most arbs are long against a short common stock position, fell 20% yesterday. Talk about burning the candle at both ends!
Now, Macro Man will readily admit that rubbernecking is not a particularly noble pursuit. Of course, that hasn’t stopped huge swathes of the journalistic community, and indeed the population at large, from rubbernecking as investment banks and hedge funds fall to earth with a sickening thud.
And even amongst those practitioners with some skin remaining in the game, rubbernecking and gossip have become a way of life; as the old saying goes, misery loves company.
From Macro Man’s perspective, keeping abreast of the pain out there- both generally and with respect to specific trades like Vee-Dub- is a worthwhile exercise. Not out of any particular feelings of schadenfreude (certain stock markets in formerly communist states excepted), but because pain brings irrationality and forced, “shoulder-tap” selling.
Your author will welcome the time when he can revert to being a true “macro” man; highway driving through the scene of a gruesome accident is no fun at all. The most important consideration is to not lose one’s concentration…and to avoid being the object of someone else’s rubbernecking!