NEW YORK ( Real Money) – The macro data never complies.
We aren't supposed to have a robust Chinese Purchasing Managers report like the one we had last night.
Remember when all Chinese numbers were worse than expected? Last night's plus-52 number was much better than expected and it dovetails with the high in the Chinese stock market index I follow, the iShares China Large Cap (FXI).
This morning's eurozone numbers, which show good expansion in Europe for both services and manufacturing (and it is not all Germany), again, aren't supposed to happen. Given all the turmoil in Russia and how important Russian trade is for so many companies in Europe, that number should have slipped.But it didn't. "Wow, great, party on," you may say. That's one way to look at it. I like to look at it as another "big short" gone wrong, meaning another bright idea from some $10 billion-running hedge fund that didn't pan out, and now that hedge fund has to panic and cover. Remember the Big Short, the book about the collapse of the housing bubble and subprime credit? That book defines the money-management business in the way that Flash Boys now -- rightly or wrongly -- defines trading. It is definitional because hedge funds are constantly trawling the world for the best "big short," the one that will distinguish them from the pack, make them rich beyond Croesus and most important, gives them bragging rights as "the world's smartest man." No one gets to be the world's smartest man by going long anything. You could have been in Puma Biotech (PBYI), Idenix (IDIX), and every other biotech that's been up more than 100% this year and nobody could care less. But if you hit the big short, well, then you are the genius we are all looking to anoint. And that's where the macro comes in. The big short is supposed to be the bet against the most overheated market that everyone is most gaga about. Or, alternatively, it is about identifying the complacency trade and then running against it. So what's the current complacency trade? Long equities. With the S&P 500 at record highs, despite the phasing out of the Federal Reserve's bond buying, don't you have to bet against stocks? How can you not? How long have you been listening to people and reading people who told you that the stock market's bubble will burst when the Fed takes the punchbowl away? What happens, though, if corporate balance sheets are so strong, earnings remain robust, a real economic turnaround picks up, and yet inflation doesn't roar, allowing rates to stay lower than you think while the leverage from higher sales and lower expenses comes through? Don't you get Chipotle (CMG) or Microsoft (MSFT) -- two that reported this week that gave you the bounty -- virtually all over the place? Now, I admit that if we had more supply coming into the market -- like the big Aliababa, Uber, Drop Box, Box, Air BNB deluge, this trade may hit a bit of pay dirt. Right now, though, as we see the earnings come in, we see the dearth of stock courtesy, how much was bought back so far this year, and we see the PEs (price-to-earnings ratios) shrink on 2015 earnings because of the better-than-expected projections, it seems like a real tough trade. It isn't looking like the Big Short that will get Michael Lewis sitting alongside you at the trading turret for his next book.
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