Monday, 18 January 2016

Iran. You ran. WEF ran.

Petrol is now cheaper than most bottled water and considering that the price of petrol in the UK is 75% tax, at 99p/litre, without the tax it is rivalling even the most basic everyday ownbrand supermarket water. I do not believe that selling oil on the Iran deal increasing Iranian supply is wise. That news is not new and the Iranian sanction lift has been obvious for months.

The Iran deal has been done and with it comes the first twist in the realignment of Middle East allegiances. Obama is playing the statesman in getting the deal through yet it will most probably be European interests that are first through the door as sanctions are lifted in stages. Iran has historically been the Russian bed-fellow in the Middle East with Saudi Arabia being the American's. Opening the doors to trade with the West will see infrastructure companies race in and a population that has been desperate to have their their aspirations for betterment satisfied rave happy. The Westernisation of a population that was once pretty westernised anyway will continue and as such this is pretty much the best thing the US can do to moderate the country. But my suspicious mind leads me to ask one of you clever readers what is stopping Iran from now acting as a conduit for West/Russia sanctioned goods? Doesn’t take much to change the label on a Brie to Iranian Brie. Or much for Russian oligarch money to get lost in an Iranian infrastructure project built by Siemens. Iran now have one foot in each camp.  Running short Saudi and Long Iran may well be the trade of the next few years.

You Ran
Price action on Friday was pretty similar to the one before. A horror close as the market ran for cover in a dump that has been printing percentage moves daily that would normally encompass weeks. Yet the VIX volatility index hasn't blown up that much. Whilst on one hand, the usual hand, that can be taken as an indication that we haven’t hit panic levels yet and so therefore we are not yet at the bottom, but pos the other hand it could also mean that their isn’t a desperation to buy volatility. Perhaps because there are fewer leveraged stock longs that need hedging. I say leveraged longs as the total amount of longs out there has to be constant as someone always owns the stock.

It is January the 19th tomorrow. That has been my mythical buy date for January. I have long held that this date is the first turn date of the year but have never really had any good reason for it other than US holidays tend to produce turns, so I was most pleased when a good friend offered this explanation to back the theory. It’s option expiry. OK, we know that but why this one? Well it’s the first of the year and option traders are even more averse than usual to show losses on the books. They like to make a loss against existing profits and only 2 weeks in there are unlikely to be many. So they will be hedging even harder than usual resulting in price moves being exaggerated and chased until the expiry is over. Which certainly fits this year's start and though this hypothesis is not yet a theory I will run with it for now.

WEF ran -
Davos is upon us. Do not muddle Davos with Davros, though the leader of the Daleks may well be attending. Bono probably is. I was thinking about how the psychology of the World Economic Forum works and of course it's exactly the same as politics anywhere. People do not go to these events to defend stasis, they go with an agenda to get more of what they want. Which implies change. To sell a story that results in change involves selling a story of how stasis is not an option and to sell that idea the here and now, the present, has to be depicted as sub-optimal. But sub-optimal is never enough to spur people to rally around your cause it has to be stronger than that. As with religion, you have to threaten your audience with doom and damnation should they not follow your reasoning and proposed course of action. Yes, with religion it’s the threat of some invisible unproven being smiting you and sending your as yet unproven non-molecular remains to a spookily anthropomorphic hell of your own worst imaginings. With politics it’s actually pretty similar but involves threats upon your proven humanity.

So with this in mind we can expect that the bias of the commentary coming from Davos will be undoubtedly swung to the decidedly gloomy. In simplistic terms, if there ain’t problems to be solved then who’s going to sign the expenses. So the first mission is to highlight, or when desperate make up, some problems. Which is why the journalists just LOVE it.

Before I leave you, I'll try to get you to cough your breakfast cereals over your screen with this gem.  Jeremy Corbyn is suggesting that the UK get rid of Trident but keep the submarines that are specifically built to launch it. I can only assume because of pressure from the Unions and SNP as the object to job losses arising from its scrapping. Right. This would be exactly the same as banning bullets, but insisting that the gun industry is kept alive as jobs rest on gun servicing. Putin must be pissing himself with laughter.

Standing by to go BOLIVIAN tomorrow (Balls Out Long, Infinite Var, It's A No-brainer) and one trade I am going to involve in that is a market favourite that everyone has probably been driven out of  - Long Nikkei / Short JPY. On a de-stressing that one could fly.


Eddie said...

Am I the only one who remembers that > 1% moves in either direction were not that uncommon?

Anonymous said...

Angus said

Hats off for having the balls to call the market and get it right.
Now, if only I'd followed your thoughts on Sterling ...