Report from Europe: One Quarter Down

Includes: IRL, JJC, SPY, VGK
by: Macro Man

It's hard to believe that we're almost a quarter of the way through the year already, yet Wednesday does mark the close of the third month of the year. It many ways feels as if the year has barely gotten started, intellectually; judging by the performance of many macro funds thus far this year, Macro Man suspects that he is not alone in his sentiments. Q2 isn't likely to start off much easier; how the hell is one supposed to play the first positive payroll figure of the cycle on a day (Friday) when stock, bond, and futures markets (at least the pits) are all closed?

Of course, like Macro Man's alma mater, there are still a few days of March madness to navigate first (or is that winter madness)? European banks are back in the news this morning on reports that Vladimir O'Lennon will essentially nationalize the Irish banking system.

Unlike Greece, however, this is being taken as an isolated incident, at least judging by the performance of pan-European banks. Speaking of Greece, they've announced plans to sneak another bond issue into this little window of opportunity. Step right up, ladeeeez and gentlemen, and get yer bonds right here!

In any event, for all the talk of differentiation this year - and to be sure, there has been some divergence in the performance of, say, the SPX (+4.05% YTD) and the Eurostoxx (-0.36% YTD, -6.3% in $ terms) - that European banks chart looks verrry familiar. Where has Macro Man seen it before?

Oh yes, that's right. It's the copper chart.
OK, it's not one for one, but the V shapes bottoming in early February do bear a noticeable resemblance, don'tcha think? Of course, one one hears the word "copper" these days, one cannot help but think of the word "China." Given the V-shaped bounce in the good Dr. Cu and Chinese high fives over its impending, conveniently-timed trade deficit, one wonder if the old pig farmers have been up to their old shenanigans and buying copper like it's going out of style (which it eventually will!).

And while it's tempting to sit back and play for the "big one" in copper, equities, and most other things, the more profitable strategy has been to play "small ball": to trade in and out rather than trying to hit home runs. Whether that continues as March Madness gives way to Opening Day remains to be seen...