Wrong Wrong Wrong

If there has been one party worse at forecasting rates than central banks it has been central bank watchers, actually we should add the markets though I would put the markets above economists in their forecasting ability. The winning trade for the past 18 months, longer in the case of the Fed, has been to fade expectation into rate announcements. 

Last BoE - Wrong. 

Last ECB - Wrong. 

Last few Feds re-direction of guidance (hawkish vs dovish) - Wrong. 

Last 2 BoJs - Wrong.

Even the Brexit outcome - Wrong. 

And the saddest forecast I think will be wrong - Trump will not be president. 

And while we are on wrong ‘uns -

China to kill the global economy in 2015 - Wrong. 

Greece to kill Europe - Wrong.

Deutsche Bank to sink Europe - Wrong.

Italian Banks (a perennial weed in the garden of economic disaster) to screw Europe - Wrong. 

Emerging market debt to screw the world - Wrong. 

Oil related High Yield to screw US markets - Wrong.

US stock markets collapse due to earnings - Wrong (new highs). 

Ukraine, remember Ukraine? No? Neither does the market.

Okokokok.. so maybe some of them WILL be right, one day, but if you count up the amount lost by 'five minute macro' on all of the above, you have to be in awe of their earning power to subsidise those losses. 

So why have they all been wrong? Basically for a couple of reasons

First reason - The power of negative interest rates has twisted economic behavior in ways that the textbooks couldn't predict. Putting a minus sign in the equations doesn't mean that behaviour does what you think. Elasticity and substitution, the two biggest Econ 1.0.1. fudge-factors, have had to be employed dramatically to explain why things aren't doing what they should do. The numbers head into another dimension, much as i, the square root of -1, invokes in maths. In economics, we head off in a direction that economists really aren't very good at predicting which is the ....

Second reason. Politics. When folk get annoyed enough about their standard of life they bypass economics and instead change the governing rules. If you change the rules of how business is done it can swamp any monetary inputs. Rich mill owner? Monetary economics really don't matter much if your workers put you in prison, steal half of your mill and smash up the rest. Political change is happening faster than anything monetary policy will be able to control. Rules will change and the allocation of wealth is not far from being decided by vote rather than the evolution of business. 

Economists are rubbish at predicting the rule changes. Even if they all think they should set the rules, 

And finally, as for the whole idea of printing money, it's amazing what you can do with a printing press. Caxton (the printer) should be given a posthumous Nobel prize for peace, economics (yeah, I  know technically there isn’t one) and physics for overcoming the first law of thermodynamics by proving perpetual motion can actually exist. Even if it is by monetarist example. 

. 

The Turkey Quiz

If you were a British tourist about to go on holiday to Turkey would you

- Go anyway, you owe it to the kids and the beaches should be less busy.
- Don’t go and blame Brexit as GBP/TRY is still lower than it was before Brexit.
- Tell all your friends you are going to Turkey but actually go to Greece.
- Pack camouflage towels.
- Still be paying €3 for a tiny coffee on the seafront.

If you were Jean-Claude Juncker would you be

- Expressing concern over the turn of events in Turkey
- Making sure that a meeting was scheduled for the Commission deputies to table a feasibility study into a further meeting for the Commission in 2020 to discuss the potential impact of the recent events in Turkey.
- Examining the latest terms from Mr. Erdogan with respect to limiting the flow of refugees through Turkey.
- Hoping that nothing blows up in Turkey until August 1st, when you will happily be away for a month somewhere in the South of France.
- Threatening Turkey with non-membership of the EU if they don’t comply with the EU directive on effecting autocratic states.
- Taking keen notes as Erdogan seems to have nailed the transition from democracy to autocracy that you've been so yearning for. Genius.

If you were Frau Merkel would you

- Be staying very very quiet.
- Threaten Turkey with no EU membership if it reintroduces capital punishment, even though you made it clear to the British during Brexit that Turkish EU membership would never happen so please don’t consider it as an issue.
- Be secretly hoping that Turkey opens the flood gates to immigrants because despite the populace's protests, immigration may be the answer to Germany's demographic problem.
- Be building another wall. But this time around the whole country.

If you were a Human Resources consultant would you be

- Wishing you'd got that Turkish contract.
- Wishing you'd got that Turkish contract.
- Wishing you'd got that Turkish contract.
- Arrrgghhhhhhhhhhhhh!

If you were a cafe owner in Bodrum would you

- Reprice all your menus down because the fall in tourism means you need to attract more customers.
- Borrow from Greek economics and double your prices because to make the same money from half the customers you need to.
- Reprice your menus up due to the inflationary effect of a falling Lira
- Continue to charge in Euros as you always have. A small coffee remaining resolutely at €3, because that’s just the way of the world.

If you were the Governor of the Greek island of Kos would you

- Start an import business taking advantage of the falling prices 2.5 miles away in Turkey.
- Sound the alarm as 14 Turkish naval vessels bore down on your island
- Call your cousin in Athens and ask him for the market price on the 14 second-hand naval vessels that have just surrendered to you and are cluttering up your harbour restricting your import business.
- Pack your bags and head for your mother’s place in the Pindus mountains as you are far too close for comfort.

If you were Mr. Obama would you

- Be on the Bat-Phone to Mr. Erdogan personally offering him your every support, including water cannon if he was short of them.
- Be expressing your utmost support for those who support democracy, but not mentioning any names in case you are held to them.
- Be reclassifying one building in Pennsylvania, containing a certain person, as Turkish territory but restricting all access to it?
- Hoping it all goes to hell in a hand basket but not until you hand over the reins to the next poor mug incumbent. By God, both of them deserve it.
- Threatening to expel Turkey from NATO

If you were Mr. Putin would you be

- Praying for Turkey to be expelled from NATO
- Expressing your wish for stability in the region and the continuation of democracy in the country.
- Working out how the changes in Turkey would affect your humanitarian work in Syria
- Skyping your new best friend in Ankara.
- Google map searching suitable sites for your next mega-villas on the Datca peninsular.
- Falling about laughing, whilst pressing the GO button on your ‘Turkey 5 year plan’ control panel.

If you were a US investor in the stock markets would you

- Be concerned over earnings data about to unfold over the next few weeks.
- Be watching the Trump circus and wondering if it will effect Fed policy
- Be looking at the trend lines and buying more.
- Have forgotten every reason you had for not buying stocks when they were 20% cheaper.
- Be 25yrs old and never needing a job as this day trading, long only, is easy.
- Be asking what all this Turkey nonsense is about when it isn’t even November.

Turkey. Markets think it’s all over. It certainly is not.

The way the markets have opened up after the weekend you’d think the Turkish event hadn’t occurred. DM equity futures have unwound all the Turkey move and USD/TRY has moved back from the 3.0400 spike to 2.9600, a level it was trading at in May.

Pieces I have read from US commentators definitely carry a ‘Move along please, nothing to see here’ tone and I don’t understand why. Is it because everything really is back to normal? Or is it because it is so far away from the US and US-centric things that it is considered a 3rd rate emerging market that really can’t impact on US things? I first noticed this tone during the coup itself with the Head of Strategy at Charles Schwab saying the whole event was a fade as it wasn’t a global issue. This was said before it was known what the outcome would be and it stunned me. Was a senior US investment strategist unaware or dismissive of the importance of the stability in Turkey to maintaining stability around so many global issues? Is this lack of understanding reflected in the behavior of the bulk of US investors? Wow. How worrying, but then also; wow, this is a huge opportunity to be ahead of them in the markets.

But we know the outcome now. The coup failed and it is no surprise. It looks like one of the world’s worst organized coups and the result of it has been a dramatic increase in Erdogan’s power.

This is not a return to how the world was on Friday morning. There has been a dramatic shift in power in the Middle East and I feel a realignment of allegiances in Turkey. Already Erdogan’s rhetoric towards the US and Europe has changed leaving one wondering how other (Russian) influences are gaining a foothold in the country. This is a NATO country so there is only so far one could imagine that going, but the situation is still of concern. The US reaction to the coup needs close examination and silences will be as telling as words. The US have Gulen and Turkey has Incerlik.

As for Turkey itself, the deputy PM, Simsek ,may well have had his longest phone call today spending 2:15hrs talking to investors to placate them. It seems to have worked with what I have read so far tonight from sell-side banks reflecting that message. ‘It’s over, fade it”. No. Think of it more simply than that. You were invested in Turkey thinking that it was a nice general EM recovery and yield play in line with the general mood. Or you were thinking of a long term investment in infrastructure there. Would you be as happy to do so now as you were last week? To the ADHD short-term traders, it may be easy to pack up your trading bags and move on, but this is a slow burner.

If you get notes from your sell-side counterparts telling you that Turkey is not an issue and that everything is as wonderful as it was on Friday morning, if not better, use them to light your barbecue.

I have bought USD/TRY at 2.9600 and am still short of DM equities. I have even added to my US equity shorts on this bounce as it appears that the US markets don’t get it as much as I feel they should. If you wish to accuse me of taking my book then go ahead. I am hardly likely to be positioned one way and think the other. That would be plain stupid.

Erdoganised Putinisation.

Turkish coup - Thoughts so far.

I'm going to write this on the fly as I really don't know what is going on in Turkey, beyond an attempted military coup. There are probably plenty of facts and figures out there that make the following look naive. So be it, they are just my own thoughts. I have not conducted research and apologise to anyone with greater knowledge for the lack of my own.

Turkey has a strong history of being run by military juntas so this is not like a military coup occurring in a main stream western democracy. I first visited Turkey when it was under military control in 1980. I was a teenager and nearly got shot because I misinterpreted my mother's instructions to be "back on the boat by midnight because of curfew" as her just wanting us back. No, there was a curfew with frightening, shaven-headed, boilersuit wearing, AK47 toting, giants wandering around. As I found out.

Nowadays Turkey is much more Westernised but we must not forget its roots. It is a melting pot of East and West and has, over the last few years become the overlapping bit in the middle of the world's geopolitical Venn Diagram. Syria, ISIS, Russia, US, Greece, EU , Iran and Energy all meet there. The country has long had the possibility of being the next global battlefield as it has already become the world's political chess board.

Just read the history of Constantinople to wonder how it has managed to stay so stable for the last 70 years.

We have a coup against a leader who has become increasingly autocratic. He has been sponsored by the US militarily and the country is a member of NATO. This is the fourth military coup in Turkey since the country joined in 1952, the other's being in 1960, 1971 and 1980 (when I was there).

We don't know whether the coup will be successful yet, the worst possible outcome would be a civil war with Erdogan going 'Assad'. This is unlikely due to the level of US and EU interest, but Russia is the other key local player and having had a jet of their's shot down, they would probably be happy to assist Erdogan's downfall. God forbid any Spetznaz are spotted in the coup.

I would suggest the most important question is who is supporting who. Worst case scenario would be Russian backing on one side and the US on the other.

Better scenarios would be:

- No external support and all domestic, though it is unlikely that anyone would try a coup without first getting their international ducks in a row, the military have normally held the position of supporting a secular state.
.
- The coup is backed by an international consortium representing broad interests. I see that Kerry happens to be in Moscow at the moment and is wishing for 'continuity' in the country. That doesn't differentiate between Presidential continuity or overseas alliance continuity. there is even the small chance that Russia and US are making up by getting together to topple Erdogan. Low probability but this is all just guesswork from me. Interesting that France closed its consulate two days before the coup.

Kurds. If things aren't complicated enough the Kurdish situation has me wondering which I the worst outcome for the Kurds. A militarily driven government where the military leaders have spent their whole lives fighting the Kurds, or a leader who likes to squash uprising like flies. Rock and a hard place.

ISIS - The back door to Syria has allegedly been open for years and terror groups have effectively been holding Turkey hostage to keep them open. This brief from Aimen Dean outlined it 18mths ago. http://www.bbc.co.uk/programmes/b04wwqcp The recent bombing of Istanbul airport would suggest that the equilibrium has tipped and the threat to the south-west tourist resorts would be growing. Perhaps the military sees this rise and feels not enough is being done to stop it. Indeed there were accusations from the Russians that the President's family has been aiding and abetting the Syrian oil black exports.

The coup is hardly a people's uprising against an undemocratic leader as military juntas are notably less democratic, But it depends on what the military coup next produces. If it just plans to topple Erdogan and then hold new elections without him or his family on the bill then this could be a good outcome.

But my overriding fear is that, as Turkey is such a tinderbox where everything meets, the risk for something going badly wrong is great. This coup is like defusing a bomb, a bomb with lots of multicoloured wires and lots of people trying to cut them.

My knowledge is not great, most of this is pure guesswork but from where I sit this is much scarier than Brexit, which in comparison will be like waving off guests after a jolly dinner party.

I normally counter extremes of mood with a tendency to favour mean reversion, but in this case, I will own up to being very worried.


00.25 BST - Hearing that the coup looks like failing. In which case add the outcome option of Erdogan seizing complete control over the military and becoming even more authoritarian. This would just accelerate the process to the next round of unrest. Ergodanised Putinisation.

Carney's Song

Carney sings The Stranglers.



Hold'em down, that's all I've done
Change a rate? You're having a laugh son,
Think they'll go tight?
Nope, you're not right.
Never a frown, just hold’em down

Every time just like the last
Hint I’ll move rates. Just having a blast
You think I will cut?
They’re stuck in a rut.
Never a frown, just hold’em down

Hold’em down, I’m a temptress
Through the ages, I tried my best
Rates, not to sway
Unchanged on the day.
Never a frown, just hold’em down

Next time around
Just hold’em down
Next time around
Just hold’em down

[repeat until retirement]

Fifth wave or sweet sixteenth and sell?

Another goal for the Polemic FCBE 'Fade CB expectation’ trading model. I feel very sorry for Carney’s kids who must be so confused in late December to find the presents they were strongly hinted to get may not turn up until January. How old are his kids? Maybe they’ve never seen a Christmas present at all, though they have often been mentioned as imminent. 

THE BoE vote to hold rates steady came in at 8-1 which wasn’t exactly a close run thing so I do wonder how the market got it so wrong. But that didn’t stop sell side analysts immediately chuffing out reems on why it was a ‘hold’ despite swearing blind it would be a cut an hour earlier. I should have taken this as a clue that self-doubt is not part of the behavioural makeup of the protagonists because my first thought was that if I had screwed up the BoE forecast so badly shouldn’t I question my ability to forecast other central bank actions? This lead me to believe that the BoE inaction that led to GBP rocketing and FTSE falling (double whammy from interest rates and GBP moves), would lead to a questioning of the current complacent maxed out belief that central banks are going to print until we have hyperinflation. So I sold some US stocks. It was like micturating into a hurricane.  

But many of the reasons for the belief in the need to cut rates and stimulate are less acute than they were mid-Brexit panic. The UK markets have not melted, the BoE have not had to do emergency anythings, Osborne didn't have to present an emergency budget, UK stocks are fine and the mighty pound is less unmighty than it was last week. 

Meanwhile, expectations of BoJ action are hot, scorchingly hot. But then so is the BoJ's ability to disappoint. The Fed targets many things and most of those are sentiment and most of that  rhymes with ‘Rock Rices’ and those are at record highs. Surely the pressure for them to stay accommodative is waning fast, so why the mad onrush of stock buying? "Because it's going up ‘innit”. 

There is more to it than that. There has been a massive sentiment change. There has been a throwing in of the towel from the bear camp with ex-permabears wandering around picking up reasons to buy like used cigarette butts from the street, or more like spliff roaches as they may well be toking on the tail ends of a high. But when people only just latch on to the reasons they should have been buying 20% lower it normally means one of two things 

1- The fifth wave (Elliot chart theory). The euphoria one, the irrational exuberance one. The FOMO rally. The 'load the boat' and 'mortgage the kids' rally. Indeed the analogies to 1998/9 have already appeared. I am hearing some ghastly reasons to buy but I haven’t seen the TDI (Taxi Driver Index) being triggered yet. With bonds, equities and commodities rallying one could say that the only thing actually moving is cash. Cash has fallen in value against everything. Now this fits nicely with the belief that money is going to be printed and could be the first signs that monetary policy is truly and utterly broken and we all need to buy gold, which is also going up. The fifth wave should be detectable by record leverage being employed but at the moment it still only feels like stop losses on long cash positions. 

2- It’s a towel chucking blow off. The shorts and cash positions being stopped out and the sudden deafening silence from the peloton of disasters that we're normally subjected to has me thinking something mighty nasty is going to creep up on us. 

Volatility is pretty cheap at the moment in stocks and it may well be worth buying straddles in SPX. No, not just buying VIX, we want direction too. But for my pennyworth, I’m going to short stocks on the belief that CB euphoria is going to wane and something, something.. is going to upset things. By the way, What happened to China? Wasn’t it meant to have vanished up its own economic fundament by now? 

Now, lastly, I am going to unveil my secret weapon. Under this dust sheet is, not a planet busting laser, but the mighty 16th of July indicator. Every year I trot this out and sometimes it works and sometimes it doesn't but it used to work very well in the heady days of the massive late 90s bull run and fairly well since. Tthe July 16th/18th  period used to mark turns in trends. As to why, I have no idea, but option expiries and US Humphrey-Hawkins Testimonials have all been cited. 

"Sell into strength," they say. Well, it hasn’t been much strengthier for ages. They also say "never sell a new high". Hmmmmm.

Markets. Where physics meets psychology

I wish I was clever enough to work out the real detail in things I have hunches upon. Or rich enough to have a retinue of turtles, as Lord Brown did at BP, or Richard Branson, to throw ideas at and for them to work out if it would actually work financially or physically. It would save me a lot of time. Perhaps that’s what crowd-funding is all about. You have an idea, post it on a crowd -funding site, everyone votes by throwing their money at you, you then spend it until it's all gone and if, as a passing coincidence you happened to make something that worked then it was proof that it worked and if you didn’t it was proof of the greater fool theory, where you were not the greatest fool. A poor man's version is twitter, where every now and again you can throw 140 characters out there and see what happens. 

I have a mind that likes to see everything in visual representations, it was always a struggle for me to cope with maths once I couldn’t visualise the mathematical world as a rolling landscape of curves and lines. I would cope with multidimensional maths by picturing series of slices of lower dimensional representations, but basically, if I couldn’t picture it I slowed right down in a morass of squiggly greek things. It has been the same for markets. I visualise a seething firmament of probability curves and prices, as multidimensional as my feeble brain can manage, yet nothing as powerful as the algorithmic chips buried in correlation models, but it has sufficed. 

This vision is something that I have tried to drum into my children. Nothing is certain and every decision you make will have been formed from a summation of all of your experience, to derive a probability curve on which to make your decision. There’s a car coming down the road. It looks miles away and a second later it still looks miles away. Therefore it is most likely not to be moving very fast so you have a high probability of not being killed if you cross the road. Though do watch out for the Tesla on auto-drive, with no lights on, coming the other way. Smaller probability, but there none the less. A infintesimal probability if you were to ask Tesla. 

So, markets are a hotch-potch of probability curves all zapping around and interacting with each other influencing the things we see that are called prices. A Brownian motion where the cloud of probability is the air molecules and the price is the lycopodium powder. My point is that the market analogies to physics are copious, yet the inputs are psychological. Perhaps it does make sense because at their very core both physics and psychology are built on probability curves. A particle is only a waveform of probability as is our decision-making process. 

I am going to digress a little here to touch upon another long-held hunch that if we are looking for quantum computing then we should look further than our own brains. A hum of probability clouds kicking up abilities that really shouldn’t be possible. Behaviour and physics. But this leads to a paradox hunch of mine that we will never be able to work out how we work because we can never be cleverer than the system that makes us clever. 

But back to the physics of behaviour and the hunch that I threw into twitter. It was this 

It's a damped oscillation and very mathematical it is too. But for me, it represents price actions after news events, political responses to emotional issues and media responses to just about everything (Brexit is covered by all three). 

I had a nice reply back from a follower (@financeinottawa) who noted it looked exactly like a Cauchy distribution, which had me thinking back to the Witch of Agnesi, which preceded Cauchy but none the less produced a nice swooping line I could visualise (Wiki it, There’s a nice gif that draws it).  I am now on the lookout for Witches of Agnesi in market patterns, much as a new breed of nutter is looking for Poke’things in the fast lanes of the motorways as they test the behavioural response of drivers and the theories I expanded to my kids about crossing roads. Nintendo is doing nothing more than accelerating gene selection. Genes - more physics and behavioural overlap. 

How the heck do animals inherit behaviour? Wilderbeast know how to run from birth and humans are able to believe, from birth, that they are cleverer than all other humans. I know this because I had an online chat with an old non-markets friend asking about binary FX options. That always sets off alarm bells. Much as Homer Simpson walking into the room holding a lump of glowing plutonium asking if it would be a good way to warm the baby would. "Just put it down and run away". Some firm was trying to sell him short time frame binary options, which MUST be a sure-fire way to lose money because why else would a spivvy firm be spinning them to him? I am amazed at the disconnect between regulated bank behaviour and bookies. The regulators should make up their minds. If banks are really just casino’s then let them be run as casinos. If not then put casino’s, sorry spread betting firms, under the same regulations as banks. But they are. No, they are NOT. Once you have tried to have a triple A sovereign wealth fund cleared through a bank’s credit and compliance department and seen it take 3 months and even then with no trades allowed that could be considered leveraged (such as selling options even if they had bought them already from another bank) then you’ll appreciate that your friend being allowed to punt 5 minute binary FX options after putting his grandmother's passport details into an online account, is NOT the same thing. 

Unlike this which is obviously exactly the same thing. 

It is both the tracks left from subatomic particle collisions in a magnetic field and the price action of my friend's 5 minute binary FX option portfolio. 

Brexit bounce, nuclear CBs and new highs.

The Brexit trade is suffering a reversal. GBP is motoring higher, as is the FTSE 250. The FTSE250 is significant as once the FTSE100 stopped tanking and reversed to ‘not since the last time’ highs, it was rightly pointed out that the FTSE100 is loaded with non-UK producers of global stuff, that happen to be listed in the UK, so naturally any percentage fall in GBP fall should be matched by similar rallies in said companies when expressed in their listed currency of GBP. Thus the FTSE250 became the 'bearometer' of Brexit for many commentators.

With that in mind it really should be noted that the FTSE250 is back to pre-Brexit ranges. Asking what that is in USD terms should be discounted as the lack of currency effect was being cited as a reason why FTSE250 should be watched in the first place.

Now it’s at this point that I start 'umming and erring' as I have two opposing thought processes.

Whilst I am fully onboard for a Brexit squeeze as expectations are so extreme with respect to GBP, BoE and UK Corporate doom, I am concerned that the back fitting story of new Prime Minister May as a softer Brexiter than Leadsom troubling. Brexit is Brexit. The only debate I can see is if the UK takes the EEA route or goes out alone. The idea that Brexit won't occur under May is absurd and, as with the belief that a load of lawyers can upset the process, a part of Kubler-Ross model which sums up the Brexit circe

Denial and frustration are still rife. I, however, am trying to work up the recovery side of the curve and it would appear that I am not alone in the ‘let’s get on with it’ camp. I am impressed at the speed with which Osborne has started peddling UK Inc in the US and  Sajid Javid’s trip to India. However we do need a dose of reality over the likelihood of positive outcome from that India trip. The EU has been negotiating a trade deal since 2007. I was wondering if the UK could pip them to a deal from a standing start but I was educated last night by twitter friend 'Brahman @_Financeguy' whose tweets I aggregate here -

"India won't agree FTA without free movement of IT personnel. EU negotiations stalled on UK objections to that. India also seeking equivalence in recognition of professional qualifications - law, medicine under Mode 1 with rights of Indian qualified professionals to practice freely in the EU (for these purposes the UK) . U.K. resisting this too. India also seeking recognition of its data protection regime as equivalent to that if the EU for privacy etc. India also seeking recognition of its IPR (eg for pharma ethical drugs and generics) as equivalent to EU & lastly India seeks recognition of its whisky as equivalent. All these resisted by UK on its own or with one or two others. Point is that ex-UK India-EU deal more likely with India competing with UK to supply some services to EU market”

So don’t expect anything soon. That bit about the whisky equivalents really surprised me. I  wonder what would happen if India insisted their wine be ranked equivalent to France’s finest left bank Bordeaux.

Japan - The gloves are off and it’s blindingly obvious that Abe is about to throw the whole quiver of arrows at stimulating the economy. Nikkei has responded as expected but USDJPY is still not really that far off its lows. Though I have bought Nikkei, JPY hedged, I am a bit concerned that its SO obvious 5 minute macro have piled in and there is room for disappointment. Isn’t there always with Japan? So I am cautiously long the Abe trade.

The most obvious effect I am seeing in the market is that of central bank response. The reason that most market have taken off is due to a massive verbal response by central banks to the Brexit event. But there is a timing issue here. The verbal intervention is instant yet the effects it is meant to counter have not yet been seen. The effects may indeed never appear because of eh verbal intervention but there is a strong chance that the global economy drifts along as before and the market expectation for extreme CB accommodative policy will fade as data such as the NFPs continues to surprise.

Now here is a something. The Citi US surprise indicator is pretty much at zero. BUT some are surprised at no surprise being the highest surprise since the last time there was no surprise. Which is a surprise to me.

How am I trading this? I have cut my long FTSE250 this morning but I am still running long GBP and have actually shorted some FTSE100 ( stops above recent highs). If it rallied on GBP’s fall then it should suffer in reverse. Indeed it massively underperformed yesterday but I have a feeling that whilst positionally the currency part of the Brexit trade has further to unwind, the equity part has already to a great extent and so will be more susceptible to a first rollover should the May effect fade.

Meanwhile, in ‘Oooh I forgot all about that' land, oil has been drifting lower and just for fun I have put on some trades looking for $50 again. Oil hardly trades on fundamentals within a $10 range, the rest is speculative, so in a mood of new highs in so many asset classes oil may well do the same.

With bonds and equities all pushing highs we could summarise everything simply as long cash positions being stopped out.

Brexit bounce and Financial STD's

It’s been over a week since I last posted due to the ratio of other commitments versus strong new thoughts. In that time the bitterness over the Brexit vote has not subsided but news flow has tell--tale indicators to it that suggest we are reaching a market Brexit exhaustion. Markets don’t do themes for long and the resurrection of the Italian Bank story, combined with nano-analysis of supposition leads me to think that GBP has gone as far as it will for now. I had been looking for a knee-jerk drop to sub 1.25 in GBP/USD but not even a monster Non-Farms could push USD higher than that low liquidity Asian dump to the 1.27s.

Pound Spring's Sprung
Short positions riz
I wonder where reversal is.
They say reversal's on the wing
But that’s what I’ve sold and bought cash thing.

Whilst writing this Landsom has quit the running and May is unopposed. GBP has shot higher as has the FTSE 250. I think this is as much to do with Brexit fatigue as it is to do with which Tory candidate will give the UK the softest Brexit landing. The markets were ready for a retracement and this is just the trigger.

And on to the next old curse to make a reappearance. Italian banks. Italy will be fine. It has to be if the EU is to remain the EU. Considering the song and dance coming out of Brussels about EU unity they are hardly going to let Italy blow the system up a month later. No. There will be fudges, bale-outs, bail-ins, balance sheet transfers and guarantees. As with Greece, local investors will be allowed to financially hang, but any motherlode of debt belonging to northern Europe will be guaranteed by the ECB (or an intermediary body) and any risk of contagion snuffed out with firewalls of EU underwriting. The losers will be shareholders, but it will not be a global issue, more like watching fireworks go off at a display. As long as you are standing far enough back you'll be fine.

Or perhaps a better analogy is to consider Italian banks the genital herpes of EU Finance. They regularly flare-up in the nether regions, cause discomfort, are infectious but are not fatal.  However, no one risks going near them and instead screams in disgust at the host for ever having behaved so badly as to end up infected. The host meanwhile, claims innocence of knowledge.

If we were to continue on that train of thought -

Chlamydia - Bank Non-performing loans. Many more people are infected with it than realise, or are willing to admit, and too few are willing to go and get screened. Often confused with Asian Flu.

Gonorrhoea, known as the clap - NIRP or Qlap (QE Lunacy, Absurd Policy). The second most common monetary policy found in DM markets. Very infectious, inflames bond prices and is very painful for deposit holders. The disease is easily transmitted but doesn’t necessarily lead to monetary transmission.

Syphilis - Desire to be an investment banker. A lingering disease caught in bars and clubs when exposed to wild spending. If caught early can be cured but the 3rd stage is incurable as it infects the nervous system rendering the victim… well, you know the symptoms.