Monday, 1 June 2015

A Worry of Small Things.

Greece - Tsipras threatening to pop the EU bubble  can be read a few ways. 1) cornered and threatening to go nuclear but won’t. 2) Greece really is looking for non EU alternatives such as China/Russia. 3) I have just read an Ambrose Evans-Pritchard article and been taken in by his normal doom-mongering.

Whether 1 is a precursor to 2 or not, 2 is now considered a much higher probability outcome than when we suggested it would play out this way in January

If we are at option 1 then we are near the end game and so volatility should rise. If we are at 2 then the EU ship is about to be torpedoed below the waterline and though the officers say they have built sturdy airtight bulkheads you don’t buy a ship with a torpedo heading towards it no matter what you are told about the bulkheads.

*during the writing  of this we have had a rumour and a denied rumour that something may or may not be announced re a Greek agreement. the thing about rumours is that they can’t be undone. They can be denied but they will never be erased. Just like buying a barrier option with one bank and selling it to another. Future prices will be influenced by it as either bank hedge it even though it nets to flat.

The reaction of the EU to David Cameron’s change proposals is probably much more important an indicator as to EU sensibility than the Greece/EU battle. Greece/EU is a now a fight in an alley whereas the UK/EU is more of an Oxford Union debate. So if Cameron’s approach is rejected out of hand under Junker’s ‘no change’ policy we can start to consider the EU leadership in the same vein as FIFA's.

If the EU were the FIFA

EU’s president would be elected internally behind closed doors.
EU would insist that they are never wrong.
It would be impossible to change the undemocratically placed man at the top.
EU would act above the law, or just change them.
EU would impose their rules with no respect for national boundaries.
EU would impose their rules with no regard towards local democracy
EU would cost its member states millions a year to maintain.
EU representatives would have generous expense accounts.
EU would be driven by one country one vote no matter the size of the population.
EU would have no plans for change.
EU’s president would lie and deny doing so instead of lying and then owning up to ‘lying when the going got tough'

Oooh errr, that's worrying. Interesting that France voted for Blatter.

But back to markets.

Greece has been a festering wound that I have tended to fade the bad news spikes but we are getting to the point (see above) where it is weighting the negative.

Oil - Despite friday’s jump higher my belwether oil stocks are lower. That is interesting and is pointing to a lower oil price. Iraq output heading higher but you wonder who is controlling it.

Stock performance - We have had a year of going nowhere yet throughout it, weightings have been building and sentiment indices moving yet higher.

EM - Stuck in a rut.

US data - it’s not rockabilly.

EU data vs mkt expectations - we have had the swing in Europe sentiment from uber-doom through reality to a more balanced position that is now slightly overweighted positives. Without further EU growth momentum to justify this there is room for a fall back in sentiment.

China  -Volatility there is nuts showing we have now passed cleanly through sensible investment to that of hope. As said before, the less transparent the reality of an investment the higher the quotient of hope its performance rests on. If you are investing in China, long or short, because you think you have an edge or data you can believe in you are either delusional, an inside trader, a lier or a member of the Politburo.

Commodities - All of my commodity linkin' inflation toting' growth expectin' ore diggin' equites stopped going up a while back and are rolling over.

Global leverage - you hear it everywhere - Tech stocks, oil wells, margin requirements, margined positions as a whole, subscriptions for IPOs despite the rising number of non-performing issues.

To boil it all down, the general increasing application of leverage into non performing positions or acquisitions with a fading momentum of global growth to bail them out is the key concern. But I can see lot of small worries massing and an attack from a swarm of small things is always much harder to counter than that from a single elephant.

I'm getting out of not only spec stuff, but anything leveraged and even long standing old favourites. Safer to be in cash and lose some opportunity for a while.


Anonymous said...

what we've seen to date has been at most a shaking of the tree of trends that has loosened and puked some, but not resulted in wholesale reversal; it is worth imagining what the liquidity demands of a more violent and wholesale episodic reversal (the kind that squeezes CTA/trendfollowers into the other direction) will do to prices, in an epoch of diminished dealer mmaking. For this, one benefits from the weekly perspective...


theta said...

Some cues of that in Bund-land these days. Enjoy your now very profitable position Polemic!

Polemic said...

thank C agree. and have just posted on liquidity.

theta.. yes.., oooooh yessssssss!