Wednesday, 1 October 2014

It's all going Pete Tong

For Non UK reader's 'going Pete Tong' is cockney rhyming slang for 'going wrong' (though Mr Tong is an awesome DJ too). I refer to the markets but first some other thoughts

Russia has a growing binary function to it which supersedes all analysis of cash flows, assets, returns etc. Will you be able to get your money out once you are in? Creeping Western shut down and Russian stubbornness in the face of 'imperialist' sanctions just sees Russia growing its bonds with China, as FDI figures are showing that EUR/US money is being replaced from the east, leaving the west with the choice of backing down or squeezing the screw tighter (
even if t doesn't work). So ADR spreads will move against locally quoted and restrictions to dealing onshore will get tighter and tighter.

Nothing in the Russian game plan points to backing down and Mr P uses sanctions as a nationalistic rallying call. How do you think US would react to Russian sanctions? Would they back down? It would just be more guns and guys called Hank cursing the damn Ruskie but I still expect a perceived change in western attitude towards Ukraine which will facilitate dialogue with Mr Putin. First signs will probably come with western media covering the nastier side of Ukraine and if they can do a you turn on Syria within twelve months then we know it’s possible.

Ebola, if their was a DEFCON for ebola we would be at EBOLACON3 in the US. God forbid it hits a major city but if it does it can’t be good for the house price spread between cities and rural as I know where I'd rather be. But we would have worse things to worry about by then.

Tesco and UK retailers.  - It's UK retail accounting rubbish. Tesco's business model is so arrogantly out of date it is almost funny. they are caught in the middle of what folk want and yes, I am one of those happy bimodal shoppers who uses Lidl and Waitrose (try Lidl's chocolate and hazelnut gingerbreads that they have in at the moment and you can kiss Fortnum and Mason good-bye). I can't think of anything I'd go to Tesco specifically for.

Yet what is more of a concern is the way they (and now Balfour Beatty) have produced shockers with respect to accountancy expectations. I am worried that it is a sign that every single bit of juice has been squeezed out of balance sheets and legal account manipulation to the point that some have crossed the line in leveraging expectations of their future performance. It's all Ok and works as a Ponzi scheme if general economic growth funds it. But if we se growth slow a lot of this accounting sheehite may flow to the surface rather fast. I would relish 'retailers' being held in the same esteem as bankers though. About time.

Balance sheets are the the cause of most financial woes, normally due to some twisted interpretation of peculiar rules that apply to them. Just take pre-2008 when it was never clear if an asset was an asset rather than a liability. Balance sheets - Just can't trust 'em!

Bill Gross -
No longer the Boss
Do I give a Toss.
No. Your loss.

But he has made a shrewd move and if he has any sense he will insist on cash only into his new fund and has stuck a VERY lazy bid against the PIMCO forced positional unwind leaving the underperformance on their books, subsidising better entry levels for his new funds.

Inflation - Will people please stop wanting it. Why do we need inflation? Anyone who has experienced inflation proper would, I am sure, take deflation any day.

The theory appears to be that inflation and growth are inextricably linked and as what we really need is growth then we need inflation. But inflation is normally a symptom of growth but growth is not a symptom of inflation. Targeting the symptom is not a way to produce the cause. Just as popping down to the local spray-tan salon doesn’t lead to two weeks sunbathing on a beach in the Maldives.

And finally markets - I stand by my views posted on Monday. This is looking messier than previous dips as everything is in phase. The sum of lots of small troughs to give a large rogue trough (the reverse of a rogue wave). Having hoovered up things that have been more out of vogue than  Jimmy Saville memorabilia, namely JPY and Gold, I have sold all my beta chasing technorubbish because it's leverage yield chasing unwind time. Looking for a move to cash, a move higher in periphery yields vs core and that applies to High Yield Corp to vs blue chip. Time for credit spreads to normalise.

And that's that for now. I am going to be off for a wander around the empty moorlands of southwest England from tomorrow so if it all blows up and I hear rumblings and see amber glows on the distant skyline I won't bother coming back.



Corey said...

Interesting about face. You still have a bullish interpretation of that summer sidreograph?

I think the markets will continue to be disappointed with the pace of the ECB easing after becoming accustomed to a Fed at always met or exceeded expectations. It's still not clear to me if the ECB has the ability to buy govt paper.

Even if Ukraine gets resolved, Mr P isn't going away as he is solidifying his ties with China at a time when both countries are struggling. HIs goal has always been to create a Eurasian Union and he continues to move in that direction.

Thinking too about all the capital that has flown to those and other emerging nations over the last decade may decide there's no place like home as they discover what emerging market really means.

Fed will resist raising rates in the face of slowing global growth. Unbelievable that they have gotten most of the world to believe that this is possible. The biggest myth ever.

Corey said...

Watched Denzel in The Equalizer this wknd at the mall as I awaited for my appointment at the Apple Store (which was a terrible experience btw - apparently only apple care doesn't cover accidental damage - only Apple care plus, which will cost you $20 more to purchase originally, but since I only had the standard ended up spending an extra $200 to replace my phone instead)

...anyway would highly recommend for entertainment value as well as a good modern interpretation of how Russia is viewed in this country. If only Obama had a bit of Denzel in him it might be a different story.

Polemic said...

That summer sideorgraph is dead by now I think Corey. re about face, put it this way, 3 months ago we were getting separated wobbles across asset classes, and none of them seemed capable of upsetting other markets or going 'pink flamingo'. In each case everything would just mean revert. But it suddenly felt in sept that everything was having a down wave together and when that happen they can feed of each other with each asset class blaming the one next to them, Much more dangerous. And so that is where I think we sit.

Apple - plot losing.