Friday, 17 June 2016

I think what you think is...

Yesterday something awful happened. A UK Member of Parliament was attacked in the street and viciously murdered. Shocking and an example of an individual being targeted for what they represent. As far as I am concerned, unless collaboration would be established, there was only one person at fault. The nutter who did it. I am not going to dwell on how much social responsibility the rest of the population has for the actions of the behavioural outliers in our midst but I want to comment upon the secondary assumptive behaviour flying around. Mostly in the markets.

Let’s start with how things looked before the murder took place. Tuesday and Wednesday saw a pick up in Brexit fear. UK opinion polls became consistantly OUTish and denial morphed into fear. Volatility in everything UK rocketed as costs of hedges flew and suddenly all markets were falling. Brexit was being blamed for everything from GBP (naturally) to oil to SPX. You name it, it is all on Brexit. Last night we had two unknowns become knowns with the FOMC shocking the market by not shocking the market as they were pretty much inline with expectations, if not a touch more dovish, but overall the Fed presented themselves as clueless. Next came the BoJ who also did nothing though this was more of a shock and saw JPY head skyward.

So this morning we started with falls in most of the usual suspects, but volatility wasn’t really playing the game. Though betting odds on Brexit were tightening, implied volatility was falling and market prices were stable. It felt as though we had had phase one of the panic and there was correlation break down in the residual down moves.

Then the markets caught the biggest bid they have seen for ages, at which point I was told that it is due to the murder of Jo Cox. To be honest the instant comments were along the lines of “Thats it, game over, there will be no Brexit”.

Jo Cox's murder should be completely dissociated from Brexit. From both sides. It's in the worst possible taste to raise it. But people just can’t help associating and blaming awful events on things they don’t approve of.

The market commentary assumptive tree was basically trying to say.

1) The murderer is representing (and was abetted by) a larger organisation and is not just a lone nutter with a record of mental illness (though that is what he had)
2) Said organisation represents everything that Brexit is about
3) Voting for Brexit implies association with the views of the murderous organisation.
4) People will not vote for Brexit on this basis
5) UK markets will recover
6) Global markets will recover.

Now that's the rough assumption that is being pumped out. The nuanced one is that marginal voters will be influenced emotionally by the events and be more likely to vote Remain than Leave. This confidence in the emotional response is nicely backed up by the real problem of agreeing on facts, leaving emotions a dominant force. But here’s the bit that really annoys me. Have you, or do you know anyone who has, changed voting intentions because of this? There is an arrogance in the expectation that this is going to change other people’s behaviour but not your own. A symptom of commentary where commentators think their behavioural responses are superior to those of the masses. It is a classic version of optimism bias where we always think we are better than others. Whilst we can appreciate that Jo Cox’s death has absolutely no influence on the arguments for or against membership, we assume the rest of the population won’t see it that way and let short term emotion drive their decision over the long term path of the UK. Yet our best reference to how others would behave is probably how we would behave, we can’t all be unrepresentative. If our behaviour wouldn’t change then why should we expect that of others to do so?

Arrogance of assumption backed up by correlation reinforcement in a melange of emotions is a toxic brew. But as we all know, assumption is the mother of all fuck ups. So eyes front, stop gawping, leave the poor Cox family to their private grief and focus on the real issues and especially stop assuming that others are more likely to behave in a way you wouldn't.

However,if I am wrong, I would like to think that rather than move to Remain, large swathes of Undecideds swing, along with plenty of INers and OUTers into a new grouping - 'Walking away in disgust as everything to do with the referendum has become so sordid'. But if they do indeed move to Remain then this may be the Archduke Ferdinand moment, where a senseless murder of a political figure by a crazed loner changes the course of European history. Only in this case preventing the disintegration of Europe rather than causing it.


Anonymous said...

Superb post. After all the disgusting drivel written associating this terrible tragedy and Brexit, it is refreshing to read this well written piece of common sense. Thank you.

Unknown said...

How different would the referendum outcome be if the Leave campaign advocated exit from EU and remaining in the EEA?
Given exit from EU, the vast majority of voters would support staying in the EEA (all the Remainers and a decent part of the Leavers), as analyzed here:
If Leavers campaigned for that, do you think it would increase or decrease their chances? They would gain votes from marginal voters who dislike the EU but can't afford the chaos/uncertainty of exiting the single market. And they would lose the hard core anti-immigration crowd. How would the balance be in your opinion?