Friday, 11 April 2014

You've Been Warned.

Yesterday I was rather hoping for the bears, or perhaps I should say "correctionists" to get Edward the Seconded by a red hot poker rally but this has instead turned into a red hot poker party with said instrument being gleefully applied to everyone in the room - Bull, bear or correctionist - without lube. I touched yesterday on general April behaviour and using the selective view methodology which I also mentioned I can say that this price action still fits. It's sexy whippy and we know it with more loss of control of the ball by each side than an under 7s soccer match.

China data is rattling some cages and this Citi surprise chart that Gavin Davis tweeted yesterday is pretty startling

It does beg the question "Well what the heck did you expect?" to the point that whoever's expectations they were should be totally ignored in future or sacked. But then I have suggested before that China is just like a currency NDF market - There is the offshore market (what we think is going on), the onshore market (what is really going on) punctuated by the odd NDF Fix where the offshore market finds out how wrong it is. China will probably be just fine. In fact that reminds me of one of the best Daily Mash articles "I'll be just fine, says planet" and like that,  maybe China will be just fine but that doesn't mean you will nor that it cares.

But the US is not happy with China and is again warning them over their currency policy. US warns China after renminbi depreciation . We have heard this before and because of that it's market impact is diminished as nothing really came of the last one. Which brings us to the value of warnings in general as warnings are only as good as the threat they carry behind them (as every small child knows). I am pretty sure that there has been an explosion in the issuance of warnings recently which has led me to tap "warns" into Google News to see what pops up and it's staggering.

But a few -

Putin warns Europe of gas shortages over Ukraine debts
U.S. Warns Russia of More Sanctions as G-7 Talks Ukraine Aid
IMF warns on rising debt levels
EU's Juncker warns over UK hopes of EU renegotiation
British economy too reliant on people spending money, warns IMF
Italian navy warns of 'biblical exodus' in Mediterranean
UN warns Burundi leaders on violence
Dimon warns regulation will push credit costs higher
UN warns of Syria food shortage due to looming drought
Malaysia not impervious to external shocks, warns Najib
WTO chief Roberto Azevêdo warns on trade recovery
Cameron warns against Ukip vote
Don't jump red lights, coroner warns cyclists at Bow roundabout lorry death inquest.

The currency of "warning" is seeing greater inflation than that of "Hope" at a US investment bank . Naturally we tend to instantly make a risk decision based on said warning based on the benefit in continuing against the warning, the cost of the alternative and the probability of the alternative. But there are two types of warning - one which points out a downside that the warner is not proactively administering. E.g. "Watch out, there's a tiger behind you" where the detriment is self administered and the type of warning that involves proactive intervention "If you don't stop doing what I don't like I'll hit you".

We can quickly scan through the above warnings and separate them into the two camps but there is a bit of an overlap where avoidance of what is being warned against will benefit the warner. "'Every other cake shop's cakes are poisoned' says cake shop owner". Unfortunately it's this type of warning that completely devalues the currency of warnings and the most obvious current example is in the Scottish independence issue.

But back to the big warnings. The gas one is probably the one that has me going "Oh God, here we go" the most. Yes Russia needs the revenue but then Europe really does need the gas and though both sides are diversifying as fast as possible (Russia just signed new deals to supply China) it's probably going to go to a Mexican stand off. I'm looking at buying more UK gas fracking stock as if for no other reason Putin is helping the UK Governement's stance towards fracking even if its not an immediate solution. On that subject I would have though that an instant response to NIMBYism would be to apply a geographic normal curve over the effected area with energy subsidies applied accordingly, e.g you are right next to a wind turbine you get free energy with subsidies diminishing by distance. In that case I would be a STIMBY (stick it in my back yard).. oh! Does that sound rude?

Right enough rambling I'm off to do my proper job.


Hotairmail said...

I hope your proper job is something sexy like boat building - rather than running a B&B by the to change the beds before the Godawful oiks from Brum arrive.

Polemic said...

Thanks for the H/T to the Davis chart Hotair.. and yes thank god it isn't B+Bs

abee crombie said...

Nice post Pol

I certainly got the hot iron yesterday but its part of the game

Any UK gas names you care to throw out. I stick to mostly US equities but am not averse to playing UK

If you are mildly bullish on capital markets over the next few years, FIG and KKR look attractive, trading at pretty much 15x BASE mgmt fee and book value of investments. Upside for incentive fees and better multiple on base book, plus further AUM growth

Polemic said...

Hey welcome Abee ! lovely to see you here. It's a small space I d say select too .. but there is no selection .. just fthat only a few people have found it.

is a reasonable place to start but the likes of Egdon trade in scraps and appear to have done their penny share rally the day David Cameron announced Govn support for fracking. Igas has been steadier but hasn't put anything on since its first spike.

thanks for the pointers too I'll take a look

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