The markets are showing remarkable patience

Outlook:

Here it is Thursday and no Greek deal yet, despite promises on Monday that it would get done this week. The markets are showing remarkable patience, and at a guess, it’s LTRO that fosters the patience. Not only does the nearly €500 billion and expected $1 trillion in late Feb push out a Lehman-style liquidity crisis and save the banking sector, but these sums are big enough to cover a lot of sovereign issuance. The ECB did a splendid job.

The FT’s Martin Wolf points out that the patient may have avoided a heart attack but remains on life support—but he is missing the point. Markets don’t care about the source of the money. Money is fungible—it’s all the same. Trading professionals also don’t care (much) about Keynesian economics or other ideological debates pertaining to competitiveness and sustainability. You can seldom make money betting on the ideas of dead old white men, but you can make money betting on how other traders will perceive conditions. So far, conditions are okay, day to day, and the long run is made up of a series of short runs. At this point, lousy conditions about Greece and sovereigns in general are built into the general expectations world-view. This prolonged drama—two years and 16 summits and counting—is now the new normal.

You have to wonder what will be the effect on the euro if the weekend comes and goes without a deal. At what point does failure become a negative, when failure is baked into the cake? As we have noted many times before, an announcement Sunday night that no deal is going to get done would be wildly euro-positive. This is the opposite of what you might expect, but consider that something definite is always better than uncertainty.

Before then, payrolls. Everyone expects a decent number—ADP’s 170,000 in the private sector offset by losses in the government sectors. Challenger Gray added a sour note by reporting that Jan layoff intentions rose to 53,486 from 41,785 in December and higher than the 38,519 job cuts announced in January 2011. Jan is the biggest month for layoffs, but still. If the number is really bad, like under 100,000, it’s possible the rosy glow on risk assets will fade and provide dollar support. A good number, like 150,000 or more, will “allow” a risk rally to revive. As always, we advise you go into the news release dead square. We usually get at least one spike and sometimes two or three, on this announcement. Pros are counting on jumping right over your stops and targets and getting your orders filled at horrendously farther-out levels. Don’t play with these guys.

	SPOT	CURRENT POSITION	SIGNAL STRENGHT	OPEN DATE	OPEN RATE	POSITION GAIN/LOSS
USD/JPY	76.13	SHORT USD	STRONG	01/31/12	76.37	0.32%
GBP/USD	1.5825	LONG GBP	WEAK	01/26/12	1.5700	0.80%
EURO/USD	1.3133	LONG EURO	WEAK	01/23/12	1.2969	1.26%
EURO/JPY	99.99	LONG EURO	WEAK	01/25/12	101.50	-1.49%
EURO/GBP	0.8298	LONG EURO	WEAK	01/26/12	0.8381	-0.99%
GBP/JPY	120.46	LONG GBP	WEAK	01/25/12	121.73	-1.04%
USD/CHF	0.9180	SHORT USD	WEAK	01 /19/12	0.9366	2.03%
USD/CAD	0.9993	SHORT USD	WEAK	01/04 /12	1.0123	1.30%
AUD/USD	1.0697	LONG AUD	STRONG	01/04/12	1.0354	3.31%
AUD/JPY	81.44	LONG AUD	WEAK	01/05/12	78.87	3.26%
USD/MXN	12.8818	SHORT USD	WEAK	01/12/12	13.5651	5.30%