Monday, 11 July 2016

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.

No comments: