Tuesday, 1 December 2015

I just don't Noah.

Apparently the next two weeks in markets are going to be the most important since Noah predicted the flood crisis. Thinking about Noah for a moment, I can only imagine how absolutely pissed off all his neighbours must have been with him. He was probably the Zero Hedge of his time, but rather than calling for everyone to build a cabin of wood and fill it with gold, he came up with the cunning plan of telling his neighbours to stick all their livestock in his floating cabin so he could sail off with it all.

But Noah is a literal case of survivor bias. 'Literal squared' actually, as he was the one who survived and he was written about. What we don’t hear about are all the other nutters who were building arks for the previous eon calling for doom only to go bankrupt as their long gophur wood positions suffered decay and they died long before their wild predictions of flooding would ever come true. So it is with markets. We have hundreds of financial Noahs telling us to build arks and not to squander our time and wealth on farming, procreating, lying in the sun and generally having a nice time. But as my wife says 'you only live once' so we might as well enjoy the now.

Living for the 'now' is apparently what ‘Mindfulness’ is all about so, with it being so fashionable, I am surprsed no one has launched a 'Mindfullness Fund' where they just spend all your money on the 'here and now', not worrying about future returns as it’s the now we have to be concerned with. Oh, hang on, they have haven’t they. It’s what macro funds have been doing with your money all year. Macro funds - where mindfulness is not mindfulness.

Everyone desperate for something predicatable to happen in the market is telling us that the two greatest predictable events are going to happen in the next two weeks and it is going to result in amazingness, where amazingness equals whatever they are predicting to happen once the two most predictable events have occured. The two most predictable events are the Fed and ECB rate decisions, but the follow-on predictable events depend upon who you are talking to. Spotted the problem here yet? Polemic’s Certainty Principle. 'If you can see how predictable an event is, the outcome is unpredictable. If the outcome is predictable then the event that causes it isn’t'. Back fitting of news stories to fit market moves is a case in point.

On the other hand there is an unpredictable event coming up that is so unpredictable people would rather not talk about it that much because predicting a tradable outcome from OPEC can be as exciting and probabilistically reliable as calling the lottery numbers, most probably because OPEC's decision are as much political as they are economic. Which makes it tough for the great mass of financial research which relies on the quasi-maths we call economics rather than the base cause of human inter-relationships which is called politics. Economics works really well until I smash you over the head and steal your belongings, at which point the supply and demand price curve bypasses price, instead verging into the i-dimension of imaginary economics.  Perhaps someone has written a paper on that, but though many seem to think citing someone else's 'paper' is gospel proof of their own arguments, most papers are only worth what they are written on (and I am not talking about a Macbook Pro).

I am getting pretty bored with markets at the moment. There seems to be an excess of navel gazing with respect to economics with actually very little happening in response. The next triggers to market moves will be via basic politics rather than newly found economic theory. I don’t know what the next trade is. Doom rests upon everything going caput re debt, but one man’s debt is another's asset so these huge numbers being bandied around probably net off to a huge extent. Imagine if there is a Martian life form up there saying ‘Fleep bodudle gweeb, have you seen how much debt there is on Earth? That planet is bankrupt!”. No it isn't, only in this respect are Flat Earther’s correct. Earth as a whole is flat.

Whilst talking about Martians, here's a philosophical question - is it possible to be criminally racist against a race doesn’t exist, but instead is only a figment of one’s own imagination? I bet it is.

As for EM and USD debt, the most likely outcome will be that EM switch to Euro or Swiss funding as close to negative as they can get and then just roll up the FX risk as usual. Bad for Eur and Chf, but then everyone is positioned for that anyway so probably nothing will happen.

Basically, if you don’t have to be trading and you don’t have to be writing about markets then don’t. If, however, you are employed to look busy in markets I recommend you buy a copy of ‘My Big Bumper Soduko Book’, make an excuse about a prawn curry and lock yourself in Trap 3 until everyone else has left for Christmas.

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