Cash is oversold.

If I was selling a trade idea I would be now composing lots of arguments as to why I am getting really nervous about the markets. But I can’t. Call it a trader's instinct or some unexplainable subconscious human pattern recognition, but I am nervous about the markets. To the point that I have started shutting down long-term positions, even my long-term favourites in commodities, emerging markets, and dividend yields.

The clues are like flitting shadows in my periphery vision but ones I can more clearly identify are -

Metals - A nicely bubbling speculative play on growth rarely sees metals sell off and copper and iron are really off.

North Korea - news stories work like investments and have their own cycle of overland under response. More attention is paid to the speed of change than the underlying slow grind. The easiest things to miss are the quiet unobtrusive trends which don’t have a 'Wow - look at that 10% move’ bringing them to general attention. North Korea is a slow-burning fuse on a potential powder keg.

Fed - A few years back I stopped getting excited about Fed meetings as the hot air to true impact ratio has always been too high. This latest one has left the market a bit confused apparently with excuses being attached to ‘unexpected’ market responses. I’d rather read this as a confused market that is grasping at straws. An indication that any new feature or price drive can easily pick up a new herding.

EU - Growth is wallpapering over the cracks in the EU allowing Juncker to assume the role of Caesar with his federalist plans. The European markets are buoyant, the spreads of periphery against core are getting to the point where they appear to be discounting convergence with no chance of independent default. All are discounted as well with EU, so how much more good news can there be?

One of the greatest trends of the past years has been the issuance of debt rather than the issuance of equity. To the point of frustration as nearly all the fruity projects I’d like to invest in are, quite rightly, held in-house. Why issue stock when you can issue debt to a closed group without all the aggravation of coping with a slew of irritating nonparticipating shareholders. The only time you ‘ll get a slice of the pie is once the idea has been maxed out for the early investors.

But if there is going to be an end to the underwriting of debt by central banks then the risks change. I think we are at the start of the great reversal here all that debt that has been issued to buy back stock gets reversed.

Do I want to hold bonds? No. Do I want to hold equities? No. Do I want to hold a guaranteed return paying above inflation? Yes. But the number of government renewable energy schemes that guarantee that is reducing fast and it’s unfortunate that the surest way to receive an inflation-busting sure fire yield is through an arbitrage of misplaced government subsidies.

So what do I hold? There is one chart that I have never seen but would love someone to produce. It is effectively the inverse of an index of every investment there is. It would be the price of fiat cash. Not having seen such a chart, but imagining it and imagining the work technical analysts could have with it, I would not be surprised for them all to be saying that cash is in dangerously oversold territory. With the accompanying ‘we haven’t seen cash this cheap since xxxx” commentaries.

Who does hold fiat cash these days? Everything is invested in a scheme. Or a new version of cash which isn’t cash. The fallout from the 2008 meltdown was a complete distrust of banks which has spawned the growth of pseudo banks that have much higher risk than traditional banks but are perceived not to as they are not banks. Cash is not king at the moment, apart from places that have been devastated by natural disasters leaving them without the power needed to make electronic payments. The dependency of the monetary system on power infrastructure is often overlooked.

But I am going into cash. It is very oversold. There are probably clever ways I can play hedges but the best hedge is to exit your position. Or buy one in a garden center.

Fund report - Polemic Casino Fund

There was a Bloomberg article out 'separating the dos from the don'ts in investing'  that wouldn't have caught my attention other than  Rob Majteles‏ (@treehcapital) tweeted it with the most observational of comments -

"Only real way? Make money, then look back and pretend you actually know why..."

Which is very apt as investment performance is as important an ingredient in feeding fund narratives as any economic data is for market narratives. Losses are excused away to the point of failure. Hugh Hendry really should have read this wonderful piece by Ben Hunt on why we have to adapt our beliefs or die. Profits are always held up as proof of genius. "My Profit, our loss", as @Gerald_Ashley pointed out to me so many years ago I have stolen it as my own.

But the idea that a random walk or luck can be repackaged as proof of future returns had me wondering how a blatant case of luck could be presented in the style of a fund performance report. So here goes.
----------------------

The  Polemic Casino Fund Manager’s report for the half year ended September 2017

Dear Investor

During the six months to 30 September 2017, the Polemic Casino Fund share class rose by 18.9%. This was more than the 11.0% gain posted by the FTSE All-Share index, and placed the fund in the upper quartile of our 'IA Funds we chose to benchmark against’ peer group. The fund notably outperformed every other fund in the IA Funds 'Not as good as us’ group.

It was an eventful six months in the casino market with seismic events at the blackjack and baccarat tables dominating the news, leading to a significant sector rotation into craps. Roulette and slot machines (particularly our hold of the 3 bars) were the best-performing sectors. More defensive areas of the market, for example mechanical horses and online poker posted negative returns. This market rotation was helpful for relative fund performance as our aggressive stance led us to avoid exposure to bar bills, hostess tips and restaurant meals thus contributing to the fund outperforming benchmark.

Roulette was the largest contributor to our total return over the period. Yields in our algorithmic ‘it’s going to be red’ model saw exceptional yields of 100% in the first roll and though yields saw declines thereafter we saw opportunities for diversification and allocations into our macro driven ’no, this one will be black’ program quickly saw the performance recover. We were unfortunate to have been subject to a 3 standard deviation event occurring at 11.30pm with the ball landing on green zero. This was due to Brexit. Though we continue to see a reoccurrence as a low-risk event, we are looking for the UK government to make their position on Europe clear so that market participants can plan for future spins.

Rapidly rising piles of cash on the lips of the penny falls machines boosted sentiment towards the sector. Competition entered the market with the Close brothers competing at slot 3, however, our selective nudging of the machine made good contributions to performance. Finally, baccarat, new to the portfolio, saw net positive returns after a game-changing acquisition of a seat next to old Mrs. Spriggington-Dawkins. While the scale and scope of the acquisition entail significant execution risk, we believe the risk/reward ratio is favourable as her small dog has run off with her glasses after she dropped them on the floor.

On the negative side, several defensive holdings on the blackjack table posted small losses as investors rotated from one table to another averaging out returns that were insufficient to pay for broker fees, a sensitive area of the market. Midway through the period, the struggling 'hold on fifteens' took their toll on the group and returns fell back. We used this short-term setback to increase our exposure to splitting 9s and saw returns improve.

We started one new holding during the period. Structured as a REIT, we have taken a long-term exposure in the real estate at the bar where staff return glasses. This environmentally recognised fund focuses on the recycling of half-finished drinks into new glasses, returning them to the market under a generic branding. The highly experienced management team has developed an excellent track record as shrewd acquisitors of high-yielding single malts. At current levels, we believe the fund to represent good value and offer a high and secure dividend yield.

Looking ahead, online gaming has significantly expanded capturing a type of market participant that we do not consider as class clients. We have swaggered into the casino on new highs into the next half with confidence that the outperformance of early 2017 is a testament to the superiority of our research, analytics and forecasting of our markets.

There has been a spate of blacks in the far corner tables, leading many investors to enter the new year with optimism. We do not share this enthusiasm. Our long-term concerns, centered on unfavourable demographic trends and high debt levels, jar uncomfortably with some broad market valuation metrics that are flashing red on our screens. So we will stick to red.

As a result, we remain relatively aggressive with our capital capture model picking up dropped chips. We are able to fully participate in what we see as the first stages of an increasingly momentum-driven, highly valued, ICO issuance program, launching our own in February. With a rotation from the tables into crypto issuance, we anticipate limitless upside whilst the stock of morons remains high.

Thank you for your continued support.

Polemic Paine

Regulatory note - MiFID II directive

We are pleased to advise investors that under MiFID II regulations, research costs will be born by the firm excepting one-off payments to Jim, the croupier. His research into when he will issue bent dice has been invaluable to the fund and is quantifiably responsible for 23% of performance in the crap market.

Surviving the behavioural arms race

I spoke to someone today who was surprised to hear where sterling was trading. They aren’t like us market watching nuts and only glean their news from the television and radio and the television and radio only report sharp down moves in GBP. But GBP is a narrative for all seasons and whether your season is bad weather to support your beliefs or good weather to support your beliefs you will find something in any move to water your roses. So, in line with my Brexit news curfew, I am not going to use the move in GBP to substantiate any narrative. But I am willing to say that GBP has gone up a lot because there are more willing buyers than willing sellers.

And probably because no one can think of any other trade to do, having worn out every other theme over the last 2 years. It also fits with my ‘don’t do what you are told' investment policy because nearly everything you are told to do in your life is for someone else's benefit.

Of course, it’s always framed in such a way as to sound as though it is for your benefit but it rarely is.

- Hi Sir would you like fries with that? Oh how caring, yes please .. that'll be £4.50
- Would you like a job at our bank? Oh yes please .. right sit there for a year on intern peanuts and we may give you a break.
- You know what? You really should get a good education, get good GCSEs, good A Levels, a degree, a job working 14hrs a day to earn money to buy a Victorian terraced house/warehouse shoe box to marry a great professional partner to have kids and pay for their great education so they can do the same and then pay off your mortgage and then save for retirement and then retire and then wonder where your life went and then die - Meanwhile you really should do stuff for me so I don't have to do it.

Somewhere along the line, you have to set your own goals, your own. NO! YOUR OWN! Not what your peer group set for you. Tough isn’t it, in this age of 'social everything' where we are more dependent upon human interaction than we ever have been. In years gone by the envelope of our survival bubble interfaced with nature. Whether it rained or snowed, if the crops grew or withered, if the hunt came in, or ate us, or if we contracted a disease. Everything was focused on battling nature.

Now think how much of your life’s attentions to survival are concerned with nature (‘Oh I worry about global warming’ doesn't count) and how much of your survival is dependent upon people outside your family group. People doing what you need them to. For you to survive.

So human interactions are becoming more critical as the hive we live in expands with more interdependent members. We are no longer independent amoeba, we are cells in a body. A body we need to inhabit to survive. Though I think we may be more like slime molds



So how we interface with others is all the more critical. Behavioural sciences, human biases, understanding our psyche to best tune ourselves and understanding that of others, to tune our responses to them to maximise their responses to us, is fast becoming the cutting edge of marginal return.

An arms race of behavioural understanding results in a vortex of behavioural play and counter play. Those trying to learn how to use and respond to behavioral inputs are already behind the curve as they are learning from and feeding back value to those who are teaching them. A Ponzi scheme if you wish. We don't know

I was at the Nudgestock conference last summer where we were entertained by some of the brightest behavioural experts out there. The audience should have been lapping up the insight but interestingly were still exhibiting there own behavioural biases that prevented them paradoxically from learning about behaviour. One of the speakers was Dominic Cummings. The mastermind behind the Leave campaign of Brexit. What he had to say was fascinatingly brilliant, as his attention to behavioural manipulation in that campaign was what won it.

Now are you still reading this? Or have you associated ‘Dominic Cummings’, ‘manipulation’ ‘leave’ and ‘brilliant’ and formed an opinion that you can’t possibly learn anything more from what I write because you hate the man that manipulated the country into doing something you feel so completely and utterly stupid, classing him as the king of manipulative evil and me, in even being entertained by his talk, must be likewise? Because that is pretty much what the audience did. Instead of enquiring, the audience shut down. Which was the most fascinating live practical demonstration of behavioural biases I have seen from a bunch of folks who were meant to understand and adapt to behavioural biases and gave me hope that there is a huge arbitrage out there in behavioural markets. If the experts can’t spot their own biases then there is gold in them there hills. most likely found selling picks to the behavioural miners. Otherwise known as running courses and conferences.

Unless you understand how people tick, what drives them and what influences them you will never be able to predict their behaviour towards the things that you cherish or need. If you have been in the markets longer than a 12yr old quant analyst, you will know that predicting why and when others will desire to own something is the holy grail to doing it first.

Handbags, stocks, electricity, FX rates, shoes, soap, kids toys.. the lot. Predicting when demand will wax or wain is instrumental to making money out of fashions. Influencing those outcomes by influencing behaviour is power, but as soon as we learn the tricks of manipulation we are able to counter them. Influencer or influencee. It's a behavioural sword fight.

Let our defences down and we are outwitted and they have us, we won’t know it but we will be striving for something that costs us and benefits them. The greatest cost of goals is the unhappiness in not achieving them.

So, as I say to the kids, the shortcut to happiness is to move the goal posts. Part of that is realising that you really don’t have to know everything.

As it is harder to know when to get out of a trade than to get into it, it is harder to know what you don’t have to know than to know what you do.

And, with that, I exit my long sterling position.
Night night

Ramblings of a mad man.

My last post mentioned me selling out of Woodford Income fund and going it alone in an attempt to lose money in a more amusing manner than Woodford had. Which primarily involved shorting EURGBP and owning a small Tungsten mining stock called Wolf Minerals. The bad news is that Woodford outperformed me on the losing money stakes, whilst the good news is I can now afford a craft ale and I had some fun.

I can’t string thoughts together tonight so here are the bullet points.

The path of pain is for equities to skyrocket again. Purely for the reason that we have had so much bad news recently and we haven't been able to go down.

I note USDMXN and USDRUB are moving higher. Why these two over other EM? Trump unwind and USDRUB is a refection of many global things.

This could be a precursor to an EM unwind, which doesn’t sit well with my general 'risk motoring' view. Better watch this.

Copper bounced but is down again. Looks like a rollover sign.  Add this to EM concern though both could be USD rally backlash.

USD rally? Look at cable, are you sure?

GBP rally, FTSE underperforms, naturally. But some idiots are going to use either to support their narratives on Brexit, so as a prophylactic…..

I have muted the word ‘Brexit’ from my twitter stream - I highly recommend it. My cortisol levels are already dropping.

“There was anger over .. “ is an overused sure fire emotional radio/tv news headline but is totally vacuous.

Listen to this - Forecasting - how to map the future http://www.bbc.co.uk/programmes/b092r72l

And when you are done with that, watch this - http://www.bbc.co.uk/programmes/b070ss9x This episode explores how the human brain relies on other brains to thrive and survive.

Mifid2 - I am setting up an "artisan organic blockchain research" platform as it will be able to charge 16 times as much for the same product as a basic research platform. Maybe more if I get a graphic designer to put swirly floral patterns on the home page.

Iphone8 - if you want to understand why it will sell more than the Samsung S8 then read this.  Basically, we are hardwired to be predisposed to believe that something more expensive is better. It’s how face creams work, or don't but get bought. And the corollary is this blog.

iPhone8 everything else- you can talk using a turd emoji. It does a lot of things the Samsung S8 does but in a cooler way. And it's got no home button. So that’s you stuffed coming out of the club at 4am. But it does want to have 30,000 points of familiarity with my face. That might work as a chat up line for some but not with me and certainly not from a phone. There has to be some acne cream manufacturer banging on Apple’s door with that feature, surely.

The levels of bad debt at Italian banks is collapsing, not as much because bad debt is getting good as people are buying bad debt from the banks in the hope it will become good debt. Pass the ticking parcel, so to speak.

It may be being used for other purposes though. Crypto currencies Initial Coin Offerings have broken the records set in CDOsquared property heaven of 2006/7 by amortising the future value of fresh air - this example of a guaranteed honestly useless coin is Useless Etherium, which would be priceless if it didn’t have a price, but it raised $90,000. So if you can now issue crypto currency backed by nothing and folks will buy it, just imagine how much you could get by backing it with something, anything .. even Italian bad debt - Standby for the ItalianBadDebtCoin. #IBDC

It maybe too late as FCA goes Loco on ICO - not really but it rhymes. They have announced that ICOs are very risky but aren’t always sure if they are covered by FCA regs but watch out if they are. And just don’t put your hand too far into the meat grinder if they are not. That's helpful, isn't it?

Have you seen how much energy bitcoin is consuming?
Please take a look in https://digiconomist.net/bitcoin-energy-consumption

The same amount as the country of Jordan just to process existing transactions. 175kWh for each transaction apparently. This is the equivalent to an inverse perpetual motion machine - you pour in limitless energy and get nothing out. Some rule of the conservation of something is being broken here and if it isn’t then the planet is. Bitcoin is not green.

And we have to add Etherum and the rest to that too.

Jamie Dimon says Bitcoin is a scam - a very bright man is that Mr Dimon. OK, he may have been wrong about some things in the past but if we refuse to listen to anyone who once got something wrong we’d only be listening to 1yr olds.

To try to immerse myself in bitcoin I tried to follow some bitcoin twitter. Imagine a primary school playground at break where the kids have found a copy of "Janet and John go charting”, some spacesuits, cardboard and crayons.

Yeah, I know - here comes the abuse. But I've openly come out as a Bitcoinophobe so you can’t oppress me because if you think that I am wrong then it means you think you are superior to me and so anything you say would be bullying. Or some such PC force field barrier.

I’ve spent too much energy on Bitcoin too. It just sucks it out of you.

Other stuff -

They are going ahead with the Stonehenge A303 tunnel. Yeehaaa!! It's avoiding the monument and though some are saying its disturbing ancient land, nearly all land is ancient. As for desecrating it, I’m sure those trees and that grass aren't 5000yrs old. Anyway, did you know that Stonehenge was moved from near Milton Keynes by the Romans to make way for Watling Street but they kept it quiet? Strange but untrue.

The protests at disturbing this monument seemed at odds with other recent calls to pull monuments down. When does a statue which is subject to being pulled down in protest against the erectors morals, transcend into an ancient monument where age makes it immune to threat. Just saying that, say, say, like, I could prove that Stonehenge was built by child murdering proto-nazis would there be a call to pull it down? No? So how is the time/moral boundary determined?

Now I ‘ve gone too far off on a tangent.

I'll end

THE END

Doom Buster

Doom Buster 

Kim Jong-Un and Irma,
Brexit and Trump,
Global debt monster,
To give us a thump

Russia, Iran,
Post-Turkish Coup
Household debt, China debt,
Coming for you

Greek budget wrangles
OPEC in tangles
Crypto new-fangles
Attack from all angles.

Yet Yen down and gold down
Bonds down and VIX down
Basis and swap down
No price risk in this town.

Stocks up and oil up
Sterling and tech up
Carry up and buck up
Buckle up for risk up

Bad news eroded
Bear market corroded
Sprung loaded and goaded
The market exploded

-------
Polemic

Bitcoin - Pick a number, any number.

I’m going to write about Bitcoin. Not because I like it, or hate it, just because I rank it as one of the maddest delusions of a market that I have ever known.

A market which is a case study of -

Correlation vs causality
Wealth redistribution.
Randomised social mobility acceleration
Disconnected arguments
The technical analysis of noise.
Cyber crime indices

Bitcoin is the blockchain equivalent of Trevithick's 1802 Coalbrookdale steam locomotive

As Trevithick's machine was the first iteration of a steam technology that was to change the world so  Bitcoin is the first iteration of a technology of coding that will change the way many data management functions are performed. It is also an anonymised payment system.

As a payment system, its value can be calculated in the same way you calculate that of a credit card company - the value of the sum of charges made for the transactions by the company, less the costs to run it.  I don’t believe Bitcoin charge transaction fees so on that basis it is zero and I don’t believe they have any IP ownership of the blockchain idea, so zero value there too. As a stock price is effectively a discounted function of future cash flow and Bitcoin has no cash flow, the value of Bitcoin Inc is zero.

Some say that Bitcoin is a currency. Is it? What drives currency price differentials?

Trade balances - Does Bitcoin represent a trade bloc and so move on trade flows? No

Interest Rate Differentials - Does Bitcoin have an interest rate benefit? At zero interest rate, it has a negative carry against any +ve yielding currency - Mostly no (unless you are Swiss).

Foreign Direct Investment - Does Bitcoin see demand due to FDI into a domestic economy? No.

Reserve Asset - Is Bitcoin a global reserve currency displaying all the criteria needed to be seen as such? No.

Inflation - Does Bitcoin move due to relative supply against competitive monetary systems. - Yes, but with the contraction of global QE this is not moving in Bitcoin's favour. An additional consideration is the uncertainty of the evolution of other competing pseudo currencies or the competitive function of gold or any other non-monetary commodity. Why buy Bitcoin when you can hedge your future demand for an underlying essential directly rather than using an intermediary?

Even if we assume Bitcoin is a currency, on the basis that it can be used for transactions, using the parallel to FX markets the transactional function of Bitcoin is identical to a very very short duration FX swap, where both parties agree on a fixing spot rate on which to base other charges, such as interest differentials. As it is on a micro time scale with no transactional charges, those costs are pretty near zero and the fixing rate is immaterial. It doesn’t matter whether the  GBP amount you need to buy something priced in USD is 1 Bitcoin or 0.0001. You also expect the recipient to really be pricing in USD with a BTC conversion occurring at their end - just doing the reverse action as soon as possible. If anyone is mad enough to price their goods at fixed Bitcoin prices then they deserve to see no business or go bust as folk arbitrage the FX rates.

If a retailer does decide to hold its BTC receivables as BTC then they are taking a massive FX risk. Which is why I read this from an Overstock ($OSTK) exec saying they keep 50% of their BTC received as BTC somewhat of a concern if they see themselves as a retailer rather than an FX punter. So should I be short or VERY short of their stock?

Having decided that Bitcoin technology has no unique value to Bitcoin itself, as it can be replicated by others (indeed the proliferation of crypto-currencies is a testament to this) and decided that for transactions one only needs to rent it for a fraction of a second, then why would one want to hold and store it?

It is said that Bitcoin is a store of value that will only go up as there is a limited supply and the rules of issue are immutable.

Even before the current issue of a bifurcation of the Bitcoin platform is considered, the primary condition for storing value is that the value of your store does not change relative to what you value. Most of us value the security of food, shelter and warmth, all of which have to be purchased in local currency. The value of Bitcoin relative to these things is currently oscillating at +/-30% a month. That is one heck of a risk that leaves even investing in CDOs a preferable store of value.

Yet despite all of my cynicism towards the price of Bitcoin, the price has indeed gone up. When the price of something moves in the direction that the narrator predicted it is used as a form of substantiation of their initial arguments. The ‘see I was right’ view is dangerous for the old reason that correlation does not imply causation. Bitcoin prices can effectively soar on the ‘greater fool’ theory rather than any of the tulip like arguments of long term value holding water.

In some cases, the huge volatility risk is a price worth paying for anonymity. Cybercrime ransom holders, money launderers and capital restriction bypassers may well be happy to run the risk but if these are the sole beneficiaries then you can be pretty sure that society will clamp down on the tool tat facilitates their crimes.

I mentioned in my last post on wine and trade selection that complexity is used to imply expertise and I seen this demonstrated in the complexity of technical analysis that is applied to crypto-currency trading. I agree that technical analysis is a fine tool to apply for market timing and can be used to detect changing behavioral trends but its over-precise application to a market which is impossible to apply a fundamental value to strikes me as futile.

I'll apply a BTC example I saw last night

Technical analyst - Price is approaching huge support at $2000!
Price - Cleanly passes through 2000 and keeps grinding lower.
Tech Analyst - Price has broken huge support at $2000! Next support at $1800
Reality - $2000 was never a massive support apart from in the eye of someone with a pencil and ruler and $1800 is just as likely not to be either.

So what does this tell us? Apart from adding to the belief that Bitcoin price is as irrelevant and unpredictable as a random walk, it tells us that a lot of people are applying a lot of effort in the wrong direction, trying to make free money from a gambling machine.

Does this serve a function to society? In one respect it does - It redistributes money. In effect, it is a steroid to social mobility. As 'social mobility' has become a term that solely reflects wealth Bitcoin is a wonderful way to take from one person and give to another. Poor people get rich and rich people get poor though rich people can get richer and poor people poorer. It is a lottery ticket with the benefit of an average yield of 0%, which is better than the -50% of most lottery tickets and winning the lottery is the fastest way up the income tree, even if many winners wouldn't be classed as moving one jot in the true meaning of ‘social class’.

In summary, I remain of the belief that Bitcoin has provided the world with a wonderful starting point from which humanity will benefit, but anyone buying a Bitcoin for long term investment purposes will end up as rich as a man who ordered 200 of Trevithick's 1802 Coalbrookdale steam locomotives expecting them to dominate the railway age for the next hundred years.

Donnie and the Great Glass Separator

Donnie and the great glass separator


As Trump is now pushing for his Mexican Wall to be transparent, let's have a guess at future news headlines.


-- Pilkington stock resembles Bitcoin during a cybercrime outbreak..

-- Window cleaners paid 250k a year as national window cleaner shortage bites.

-- Wall Street offices remain the most opaque since 2007 due to window cleaner shortage.

-- Microsoft stock trebles as algos misinterpret news of massive new demand for windows

-- Plastic surgeons move to new Mexico cashing in on the surge in facial injuries due to walking into unseen barriers.

-- Convexity within structure causes unforeseen losses. - Wildfires ignite due to sunlight focusing at bends in the wall.

-- Drug prices in US collapse on increased supply as drug dealers can now see and catch the incoming contraband.

-- Mexicans break the world record for mass mooning.

-- Curtain sales soar as design flaws in original plan ameliorated.

-- Trump warned not to throw stones as old English adage upheld by a court in Albuquerque.

-- Algorithmic trading companies use wall as massive fiber optic data feed.

-- Vogue declares glass this year's thing.

-- Opthalmologists argue wall should be corrective.

-- 'Rain-x' hording blamed for 2% rise in US retail sales.

-- CNN mock Fox News story that wall to be double glazed to keep Texas cool.

-- Seaworld petition for double glazing to have 30ft separation with a water-filled interior to create first Atlantic to Pacific dolphin race track.

-- Dolphins trained and fitted with anti-drug dealer missiles.

-- Wall to be semi-mirrored so Mexicans can't look in, but US can look out.

-- Peep-show business establishes 300 miles of booths.

-- Rayban sponsor wall.

-- Anti-discrimination groups march under the banner "The glass is always cleaner on the other side"

-- Glass ceilings ruled legal on glass wall president precedent.

-- China build new Great Wall, invisible from space.

Vinicultural Analysis.

For the past few months I have been pretty inactive in the markets, instead parking money in dull old dividend paying stocks as I couldn’t see much else to get excited about.

Since then we have seen various scares pop up and disappear but, like perennial weeds in the garden of information, they sprout and either die or get pulled out. The continuing debate over who put the RU in TRUMP, the noise around how Brexit will or won't happen, the odd resurrection of how China is doomed or Australian property is about to go bust. The regular resurrection of "look at global debt it’s all going to blow up", the odd explosion of crypto-currency excitement based on the fact that the price has moved (normally due to someone using it to blackmail the world's computer users) or we have the perennial oil will dump/rally because xyz. But the markets have been steady. Of course, if you fractalise a chart you can always paint a picture of sharp moves but look at longer charts of much at all and nothing is really that exciting. Even USDMXN is back to where it was a year ago, acting as a class example of how short term trading on really long term ideas nearly always ends in disappointment.

So hence I have been sitting it out, picking up dividends.

There have been the odd opportunistic punts, normally fading fast moves, but I have even closed out my long time favorite of long USDTRY. Turkey is still a major focus for me as it sits at the intersection of so many regional power plays, but with the Justice March now over, media attention will wane and the country reverts to the back burner.

But today I sold US stock indices.

Why? Well, here I have a choice. I can list some complex arguments including charts, spreadsheets, numbers, political insight, positioning information and all sorts of things but is there any point? Explaining why you have put on trades is much like explaining why you like a wine. You only do so if you want others to try it or buy it.

To communicate in the world of wine, a new language has to be learned. One of the terroirs, climates and similes to every possible taste that isn’t wine flavoured - you never hear a wine critic saying a wine tastes of grapes, it's always blackberries, honey, tannins and herbal notes. This language is then used to describe to others, who also understand the language, whether they also should or should not drink it. But if you have no intention of telling anyone else wabout a wine, nor any interest in wines other people like, then you have no need to learn the language. I know which wines I like and I have them on a mental list in order of preference, but I do not need to know that a wine is oaky, citrusy, rich, light, tannic or blackberries with a finish of old dish mops to know, when I drink it, whether I like it or not.

In the world of finance the language of communication is slightly more important as, unlike wine, it really doesn't matter whether I like what I taste, but whether everyone around me likes what I have tasted too, preferably after I have tasted it so that they go out and buy it making what is in my cellar all the more valuable.

So the reams written on financial markets have the purpose of explaining why people like things in the hope that others will follow the trade or pay to read the critics' views, or just as importantly, to explain errors of judgment. Where a stock is purchased but turns out to be corked, the communication  runs along the lines of why, ast the trade idea came from a great house, grown on a terroir of MBA PhDs, lauded by the greatest trade sommeliers in the world,  it really was a great idea but just bad luck that it was pure vinegar to the P+L palate.

The routes to drinking a wine that you like are similar to those to initiating a trade.

1) You buy a plot of suitable land, plant vines, harvest the grapes a few years later, learn how to make wine, make wine and then drink it.

This route is the same as doing your own research. It is hugely time-consuming and you have to be an expert at every point of the process to ensure that errors don't compound resulting with a Balsamic.You run the risks that in the time it has taken your tastes have changed or you have gone bust investing in the infrastructure. This is the losing trade that really should have worked because you have 10 years of records and proof of process, yet you can only offer the excuse that it was really awful as being due to 'unforeseen eventualities'.

2) You follow the critics.

You read the Sunday newspaper supplements and try the recommended wines in the food and drink sections. After a bit, you get to know which critics throw up a higher number of wines you like and so tend to follow their recommendations more than any other. This is the cult of the media guru, the hedge fund god, the big name. But in following them you are always paying more than you should. The critics are already positioned, or their bosses are, and even if you sprint straight from the newsagent to the off-licence you’ll find you've been beaten to it and the shelves are stripped bare.

3) You know a man who knows a man.

I used to know a man the wine industry who specialised in finding the small vineyards next to the big famous ones. Their wines were nearly as good but at a fraction of the price as they weren’t geared for large-scale production or distribution. In finance, the chatter of those perceived to be closer to the big decision makers is deemed more valuable than that of others. Whispers start that a great trade is coming and only the cognoscenti know. And, if you listen to the right people, you may catch a whiff of it too. Twitter is the Tinder of financial gossip matchmaking.

4) You try lots of wines and settle on the ones you like.

You have instinctively grown to know what works for you, though you really can’t explain why you like them to anyone else. Nor want to. You rarely hear of these wine drinkers as they serve wine as a secondary consideration to the main event of the food or a party. They know what they like but won’t ram its wonderfulness down your throat. These are the old traders who just seem to have a gut feeling for markets and rarely say more than "it’s bid" (I like it) or "it’s offered" (I don’t like it).

5) Use a combination of 2, 3 and 4.

This is how things tend to work both in wine and financial markets. Opinions bend according to fashions, fashions are set by style leaders (gurus) and the masses follow. Gurus wax and wane but mostly wax until there are so many of them their value is diluted. Yet to be part of the in-crowd you have to be able to talk the language. To sound more of an authority than the next complexity is exploited. The finer the detail the more assumed the expertise is.But often the finer the detail the less influence it has on outcome and the less it matters.

Apart from methods 1 and 4, one has to learn the language of financial market communications. Either to show one's own prowess, to be followed or paid, or to understand what others are saying, whether it is true or not. Every now and again a critic can trip up, like the CNN lady who claimed this week that Stagflation is a new made up would be the equivalent of a wine critic excusing herself, saying that she just thought that Sauvignon was a typo of Sauterne.

I have sold US stocks. The price can go up or down. 50/50. That is all you really need to know. Why I think they will go down is only important if I want you to also sell US stocks or for you to think I'm really knowledgeable and to be listened to in future.

I really don’t need you to do either.

I just know that I like it.

Chihuahua disruption.

I met a great young doctor tonight, he 'scoped my throat because I thought I was going to die. My hypochondria, as it turned out, had merely toyed with 'fish bone graze + general sore throat' and arrived at 'red herring'. Well, actually that was his joke. My joke, after he had mentioned the soaring value of his Bitcoin position, was to paraphrase and throw back at him the old vegan joke.

A- How do you know when someone is long of Bitcoin.
Q- Because they always f’ing tell you..

He is long Bitcoin and believes that the price of bitcoin will revolutionise the world. I asked if he knew a surgeon called Mr. Ponzi. He didn’t. The price of Bitcoin can be anywhere you want as the value of a chequebook is not the value of the number written on it.

So I'm launching a new index to go with the other indices out there. To the DPI ( Dinner Party Index) and TDI (Taxi Driver Index) I add the DrI - the Dr. Index. (A Baltic DrI perhaps? Maybe, but not after Brexit).  The DrI is flashing red on Bitcoin. Mind you, if you are a young doctor and wish to go long of crime then buying bitcoin is probably safer than following Dr. Crippin’s investment advice. Or perhaps my new friend is counting on the NHS becoming a Bitcoin-based service, where you use virtual money to pay for virtual care. Nononono .. a cheap pun, NHS care is unbelievably brilliant when you get it.

But the young are great believers in new disruptive technology and scorn the types of company I had just visited on my way to having a probe put up my nose. I had visited our local Audi dealership to pick a car up from servicing. I usually take my cars to Ken. He is brilliant and for a one man business in an old barn, it's amazing the amount of tech kit he has to cope with all the makes he deals with. Ken charges me £40/hour. Audi, with their one brand kit, charge me somewhat more than £150/hour.

So why did I go to Audi? Because they have devised a new form of restrictive practice. The service logbook is now online with only Audi or Audi recognised (read ‘paying Audi’) entities allowed access to make entries. So to get my electronic service stamp I paid the entry price for a service and experienced the equivalent of the Salvation Army headquarters in the City of London. The similarity? Hugely expensive expanses of chrome and glass sitting on prime real estate, funded by money that shouldn’t be going to purchasing and running glitzy premises, instead, being used to give charity to the poor or to provide spannering services at prices somewhat lower than legal fees.

But Ken hasn't lost out completely, I had an email from Audi near the end of their process. They had a worker go around the car with a video camera and then emailed me the resulting film together with an electronic Audi version of Amazon - an electronic shopping list of all the things they recommended I have done, ready to be clicked and authorised. The design of the site was clever in the way it replicated the easy, one-click "Jeez did I really mean to buy that” sites. They even had a picture of my car in the middle for that ‘look at your poor car, all alone in the garage, if it were a kitten you’d spend anything to make it better now wouldn’t you?’ pressure. I didn’t get much further than the £84 for new wiper blades and £60 for a bottle of brake fluid to be added because, if my car were a kitten, it would have a £100 self-insurance stop-loss on its head when it came to its longevity. Instead I 'cut n pasted' the list to Ken and had it booked in with him for the extras.

So what is going on here? Ken is the friendly man I trust, he gets the job done efficiently and he is a quarter of the price - yet he is not disrupting Audi. Far from it. Audi has created barriers to entry that in the financial world would be considered monopolistic and in Silicon Valley, would have seen Microsoft have to unbundle its web browsers even faster. I have to deal with Audi because of protectionism and I loathe them for it, even if they did give me a biscuit with my coffee as I waited the quarter of an hour to be seen by a service rep.

Disruption? I'm beginning to think that the branding fad of disruption is at the same point internet stocks were in 1999. Yes, it (new paradigm) sounds great but the soundbite is so far ahead of the reality you need the Hubble space telescope to see it. Facebook, Amazon, Netflix and Google are not an example of how successful disruption is but, instead, what a failure it is. Who is now able to disrupt any of them? The plethora of primary coloured adverts (with lots of circles, circles are so inclusive) for disruptive new ideas thought out in a land of ideals are not so much world changing, but more like chihuahuas yapping at the heels of the behemoths. One might get lucky and land a turd on Mr. Behomoth's shoe but most are likely to get kickstarted with a swift back heel into the long grass yelping or get picked up but then quietly taken around the back of the woodshed. Some even take themselves around the back of the woodshed, such as the dreadful Lily drone that I stumped up for 2 years ago only for them to go under with my money.

Another reason I was thinking about the old steady investments versus the new was because of some wise words a friend of mine, relatively new to investing, had said to me. It was probably the first thing he had heard and it had stuck-  "never underestimate the investment power of dividend-paying defensive stocks" - which conjured up Kipling's ‘If’ lines

If you can keep your head when all about you
Are losing theirs ..

Now at that point I always thought the next half line should be ‘…. then go short hats’, but here it's a comment on the old stalwarts. The type of company such as Unilever, who make so many essential day-to-day products they will just keep trucking along paying the dividends. Diversified product ranges all under one competition swamping conglomerate.

The topic of the Unilevers of the world was raised again in my conscious today by Dave Trott’s article in Campaign. He observes that the FMCGs ( Fast moving consumer goods) that Unilever excels at selling are not actually subject to the same form of brand loyalty as expensive consumer durables. If people buy a £5 product and don't like it, they can buy a different one next time and won’t give a thought to the £5 opportunity cost. Brand loyalty is greater the higher up the price point.

So how does the disrupter get high enough up the food chain to establish itself as a brand to be followed rather than a brand to be ditched? It needs to fight all the other newcomers. Tadpole land, where carnivorous tadpoles consume each other in their fight to make it to frog. The more seething the mire, the more energy is expended getting out of it and the less energy there is to take on the beasts that have already emerged ahead. In this respect, it is in the big companies interests to maintain the idea of the disrupter. Sell the dream of potential riches, much as the Investment Bank boss sells the dream to minions that if they work hard they could one day have his job, but all the time benefit from their infighting to protect his own position. Very Napoleonic in management style.

With markets being so quiet, as far as major trends go (get back in your e-box, bitcoin), we are left with streams of news and articles that are much like the chihuahuas of embryonic disrupters. Stories about what may, could or possibly happen if 4 levels of circumstantiality occur. The sands of news are being combed for tidbits of investment opportunity. But, as with most treasure hunting, the bulk of the bleeps from the metal detector yield nothing more than ring pulls which, though they once released a fizz, are now dulled with age. Which is why I am looking at this Steady Eddie, non-attention grabbing boring yielding non-tech behemoths to park my money in whilst I go and pursue more worthwhile interests for a bit.

The idea I am trying to propagate is that disruption is almost fake news. The big boys quietly stride on and are erecting further barriers to defend their positions whilst the new overexcitable disrupters yap and clamour causing the misdirection that is the foremost requirement of theatrical magic.

.... and watch for it in politics too.

Orpington Markets

At last, I am starting to form some thoughts and the result of them is pushing me towards sounding like Zero Hedge

There are dark clouds out there but day to day life carries on. One thing that previous crises has taught me is that the world is mostly made up of people who don't care. Their lives are too fraught with their own day to day concerns to change their set ways because of things happening a long way away in both space and time. 'Space' as in 'now but just not here' and 'time' as in 'it did 'happen here once, but a long time ago'. Like a fight in a street, crowds can see it happening but will walk on by minding their own business unless or until the fight turns on them. You may know things are going to be pretty shitty in the future but what do you do? Panic now and run away? Or bow to peer pressure and stay at the party drowning your fears, even if it does mean you have the biggest hangover the following day.

Or it's like falling asleep on the train after that party. You were surrounded on a packed train when you got on but you blink and find yourself alone in an empty carriage being shunted into a siding for the night. How the heck did you miss your stop, only to be left as the last one onboard with a night of cold darkness ahead of you? *For the record, throughout my life of commuting and some pretty big nights out, I have never missed my stop home.

In many ways, the markets are that train home. And we are currently at Orpington. For those of you who live in Orpington please disembark this post here, if you haven’t already at Chiselhurst. Orpington is an irregular stop on our fast line that normally evokes a low groan from non-Orpingtonians when the train stops there as, instead of whistling in and out of London, a stop at Orpington guarantees the train becomes rammed with London suburban commuters. As one old cove remarked many years ago, on opening one eye as the train drew to a halt in Orpington, “Ah, Apache country” and immediately took cover behind an FT.

Why are the markets at Orpington? Because when I look out from this packed train I see Apache country. I feel as though I am watching a movie through the window rather than an immediate reality I am actually involved in. I see visions of potential war, I see visions of EU upset. It’s beyond visions of a 1950’s Cowboy flick, it’s more an animated Dante’s inferno. But I'm behind the glass and it's warm in this train and there are lots of people around me who are also on the train and they don’t seem worried, so I’ll just stay here shall I? This is the problem with buying indices blindly. You are behind a glass wall in a carriage of self-reference and whilst you may see worries outside, as long as your peer group are with you then that reality appears far, far away.

But is the train about to empty after I return to my doze as my fellow travelers decide enough is enough and the future looks too bleak? It’s a game of chicken. No one wants to get off while it's warm and comfy but when they start there will be a rush for the doors as suddenly a phase change of opinion self-catalyses. A seed crystal in a supersaturated solution of bearishness.

So what do I see outside the window?

Russia vs West on the Syrian football pitch. I’m sorry West but your team is looking like Dad’s Army with Captain Donald Mainwaring in charge with Sergeant Boris JohnWilson organising things.

North Korea - they have informed the 200 foreign journalists currently there to prepare for something big on Thursday. As it’s the day of the Sun in North Korea that day I just pray that they aren’t going to make another one.

Europe - or more particularly, France. So we have a rising possibility of the final two candidates in the last vote being not Le Pen and Macron but Le Pen and Melenchon. Now as regular readers know my money has been on Fillon for a while but with the perceived rise of those previously thought not bothering to turn out now bothering to turn out and preferring Melenchon things have changed, there is suddenly the potential of having the far right and far left candidate agreeing on one thing -The EU/Euro has to change or they will take France out of it.

Yet my Fillon bet is not dead yet. The prospect of having two extremes both with anti-EU intentions could mean a resurgence in votes for my runner Fillon. Why Fillon and not Macron?

Well, Macron’s chances have just been blown out of the water. By what? I can proudly announce that the foolproof 'Economists Letter' indicator has just predicted the demise of Macron.

I last pointed to this trusty indicator a week before the US elections (here) when a panel of eminent economists endorsed Clinton. This was on the tail of the Economists Letter supporting the Brexit remain campaign. Well, they've done it again in France - see here - now my French isn’t great but reading that I think they are supporting a tasty new economic croissant that they hope Macron will bake for them.

So that is Macron out of the running, leaving the 'fallen at the first fence' Fillon, up and running again with a clear shot, backed by the moderates. Okedokey, tongue in cheek there, but this signal has been so stupefyingly accurate one has to take note.

However you want to spin this, the chances of France causing a wobble in global markets has increased rather than decreased. If France ends up with the far right or left winner then not only do OATs (French bonds) get toasted and rolled and all the other porridge puns, but Italy is going to be in a right royal mess unless it eats humble Greek pie and bows to every demand Germany makes.

So what do I buy or sell in this maelstrom? I may be late to the Party but I have sold some OATs. Selling pure Euro is not that simple. Yes, it's a wobble for the area but if France leaves the Euro does that make the Euro less or more valuable? It's a bit more German and a bit less French than it was. Which COULD be read as a stronger thing. My view of the ultimate fate of the Euro is that it will never die, instead people will gently abandon it until it becomes, like the holy grail in the Indiana Jones film, a dusty relic in a Brussels catacomb guarded by a representative of the ancient order of the Knights Euro for the ages to come. The rest of the world will move on to new shiny things. Where I will play Euro though is short against GBP. Long term GBP shorts may be suddenly squeezed by, believe it or not, the chance of the UK becoming a relatively safe haven. Now there's a thought.

So being uneasy on Euro, though it is an easy knee jerk bet, I am selling some BTPs again and buying low delta puts in things that shouldn’t be affected but will, no doubt, catch a cold from it all. Especially if I revert back to my Dante’s vision out of my train window, I am looking at SPX puts 2 and 3 months and buying gold.

After many years of decrying the goldbugs, I am buying it. And in true gold bug style, I am going to buy physical, not some ETF stashed in a warehouse a million miles away, and not tell anyone where I am stashing it. Though if I left it in my local station platform vending machine I think it would be pretty safe from ever being found.

So back to the market train. I am at Orpington and I am shuffling for the doors. I want to get off whilst it's Apache country before I get to Dante's Inferno or find myself in the marshaling yards at Folkestone, where a few old colleagues have spent a cold and miserable night comparing Folkestone to Dante's Inferno.


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Final footnote - A huge thank you to those who have sponsored me to help YoungMinds. I walked 42 miles over 3 days, not big for you fit young things, but a Saharan crossing for me. Should you be able to make a late contribution to try to get me to my target I have left the page open at https://www.justgiving.com/fundraising/Polemic-Paine
A contribution from an Orpington reader would make my day. though is now very unlikely.

Watching from the stands trying to work out the rules.

It's been a while since I posted, for the simple reason that I haven’t had anything to say.

The world of finance and investing has, for me, been pretty much on hold as I have been so mistrusting of the pace of the equity rally that I haven’t been overly long, yet also aware that mood can drive things way beyond where I think reality lies taking out any stops I may have on shorts.
So it’s been a do nothing month, apart from watching my long owned March 17 put expiries signal the top in the markets. Oh well.

Oil has been on my radar as I have been generally long of the filthy gloop for the past 18 months. What I have found most interesting is the way the price has been behaving with respect to reported positions. Monster longs in oil building even as US inventories built did look odd and a look at the forward curve sharply moving into backwardation pointed to odd things afoot when backwardation normally implies short term supply restriction - which didn’t tally with the inventory figures - unless the inventory was actually captive speculative hoarding.

But the recent falls, which should have been so obvious given the size of speculative longs, were interesting because they took so long to appear. Normally when one sees huge positional extremes either a binary event occurs to justify them or they unwind pretty quickly. This one didn’t. Which has me wondering why and looking for other examples.

This ties back into what has been happening in stocks and is reflected in my apathy to play. Under the rules that I have modeled my trading life upon, this stretch in equities with positions growing to levels not seen since [insert a previous date here] and cash levels in funds falling, a pull back would have been seen by now.

So why hasn’t it been? If I say a binary event has to occur to justify new massive positions then I can label that as ‘Trumponomics’, let's hold that thought for a moment. If I am looking for positional self-corrections to occur then the short term moves should have corrected by now. Is there a new factor? Here I have been wondering if we are seeing a new form of herd behaviour driving prices further out of line from past norms.

I have a feeling that models and passive funds push deviations further from means. Corrective forces are overshadowed by their dumb money and here I provocatively include 'Artificial Intelligence' in dumb money. AI might appear to be awfully clever and is a wonderful new marketing tool - a ramped up version of ‘our model says’ which was the first substantiation to pull money away from those decried ghastly human operators with their unpredictable emotional responses. Well, I’ll have a little side bet that the move to put all the eggs in the AI basket will end up with omelettes. The move to AI will create a new special herding in an AI manner which has not yet been discovered and will not be noticed until it is too late. ’Tis ever the way.

Training machines to behave like humans will most probably amplify the heuristics they are exposed to at inception. The catalogue of behavioural biases we note within ourselves will have to be weeded out by the coders and, I am sorry to say, coders are not the most savant of emotional beings.

But back to that binary Trump function - So, it looks as though Trump is not getting his way at last. It’s only taken two months to work out that Trumpworld is much like ‘Westworld'. A false reality run by robots with the objective of fulfilling punters’ dreams… for a price... finally sending them home poorer to the cold reality from whence they came.

The unwind of the Trump dream in equity land COULD be huge. But there is a twist, as there always is in Westworld plots. What if the equity market didn’t actually go up because of Trump policy? What if it was only a trigger, a narrative trigger, to what was actually a huge final exhalation from the bear meme that has effectively been running since 2008. Now before you vehemently protest that there can’t have been a bear meme throughout the huge equity rally from the 2009 lows, I will argue that this rally has been the most fought rally ever. The dominance of narrative that ultimately stocks will fall again has been constant, passing from bad news peg to disaster post. It only relented at the turn of this year when the mood changed dramatically as the final shorts were taken out and bear towels were thrown in.

On top of this, I have to throw the filter of central bank policy where there is a continued oversupply of money as the central banks are terrified of reversing the stimulus. The Fed because well, they are still Yellenised and afraid of their own shadow; the ECB because of the need to support peripheral debt; the BoE because of their Brexit fears; the BoJ because policy is only just pulling the economy out of a 20 year nosedive; China because they reverse engineer the stats to suit themselves anyway; everyone else? Well, to be honest, the rest don’t count as they are mostly indebted to ECB, Fed or China policy by one route or another and all that changing their own interest rates really changes is their domestic FX rate.

So this doesn’t make plotting our position on the financial maps any easier.

I still see a correction to Trump occurring (we have started), but the level to which markets will fall has been reset but a fundamental jump in really long term attitude. All of this is further clouded by the growing influence of the non-humans. Which leaves me even more inclined to stand clear and leave it to the machines to fight out while I pursue a new career in something creative.

AI is amazing, it just isn’t as amazing as we think it is yet. You can be smart but it doesn’t stop you being pushed over by an idiot.

http://www.bbc.co.uk/news/technology-39397211 Uber suspends self-drive.

Now finally the important bit -

It's been a while since I did anything decent, especially with regards to raising money for worthy causes, but I have been drawn into the story of a friend who I have promised to help with fundraising for a great cause 'Young Minds'. They are a leading charity trying to help the ever increasing number of our young who are suffering mental problems, often unspotted.

I am setting off with them on a coastal walk, but it's immaterial what I am doing as my request is the same whether I do nothing or cycle to the moon - Please, if you have ever enjoyed this income free blog or the odd tweet, a lovely way to thank me would be to help them.

https://www.justgiving.com/fundraising/Polemic-Paine

There is more of the story at that link.

With thanks
Pol

Together in our individuality.

I spend more of my time with creative types these days. There is something about them that makes them all identifiable as creatives. In trying to express their individuality they all look the same.

It is true for much of their output too. Though their work may be wearing cheeky coloured socks, the uniform is the same.

If this is the result of thinking outside of the box then perhaps returning inside the box would be more outside it. Their world more a Klein bottle than the free universe they perceive it to be.

It’s tribal clothing. Tribal clothing is spawned from the need to at once be both different (from other tribes) and yet the same (as the tribe).

Mr McKechnie dressed for the part. 

Architects - black round neck jumpers and Saabs, but these days it's Audi TTs. Apple adopted the architect garb for its masters as architecture is perceived to be where art meets science, the image that Apple has successfully adopted. I'm not sure if that is true but in today’s back fitting narrative world I’ll create it as a retrotruth.

Retrotruth is a term I predict will appear as the next derivative of the alternative facts. Once alt-facts have been established they can be back engineered, by the application of Determinism, to derive truths in the past that would otherwise never have been.

I was thinking about going on to talk about financial market specifics but creatives are briefed to give clear messages to influence the behaviour of the recipient. To this point, the messages have to be short and to the point. No distractions. This is why adverts tend to rely on images rather than copy. It is rare to see a full page advert that is predominantly text.

But there is a stronger driver in the desire to keep the message brief. Extra content not only clouds the message but can be the source of disagreement that alienates the reader. A single part of a published work can undermine the faith that the reader has in the whole.

The greater the number of ideas in a piece the more likely the reader will be alienated and the less likely they are to carry the message on. Heads or tails, where a 'tails' switches off the audience. A stream of flips is more likely to have a tail in it than a single flip. Stick to single flips.

The shorter the message the more likely it is to be broadcast by others, so the sound bite is born and Twitter booms.

Though an individual is built from many ideas and beliefs, sending ideas out one by one reduces the chance that the ideas pollute each other. The ideas are processed by the recipient in parallel rather than in series.

An author can produce two tweets. A tweet and an anti-tweet. Together they should combine to cancel each other out, just as virtual particles do in the world of physics. But separate them and they can live their own lives in their own tweetospheres, gaining the author followers from both universes.

From a primordial information soup of disparate amino acid statements, we build our own creatures of reality. Genes from different pools reassembled by us for our own bespoke purpose. Yet many of the genes are faulty, the basic news is corrupt or fake as there is no one to screen them. Building our vision of reality from these twisted facts we run the risk of creating Frankensteins of reality.

So it now lies to us to learn and question the very building blocks of our knowledge. If nothing else, the modern information revolution and the corruption of facts is driving us to learn more about the world in order to understand it. We can no longer rely on others.

Quincunx policy making. Quincunx markets.

It's been a while since I last posted as I have been waiting for the realisation that Trump was not going to be a shoehorn to economic prosperity to dawn, as his extremes either shock the rest of the world into moving away from buying US assets or his changes collapse in a cloud of impracticality. Neither of which has happened.

My simplistic de-Trumping plan has turned from a binary game of all on / all off into a multi-dimensional game of chess. Hard Trump and Soft Trump, to borrow a Brexit phrase, are forms of Trumpism that are swarm like and ever changing. The strength of policy swings on a Tweet. With foreign policy we have seen back peddling from 'hard' as the one China policy appears to have been acknowledged, Japan declared ‘best friend’ and Canada told that Trump is only planning ‘tweaks’ to NAFTA.

Yet the rhetoric against the likes of Basel III remains as strongly worded as ever and the deregulation of US banks could cause some of the greatest strains between the US and EU. Since the 2008 crisis regulations have been seen as much a moral crusade as one of practicality. Dodd-Frank and Volker, though nice ideas, were never fit for purpose and the laws of unforeseen consequences have produced all sorts of schisms, whether it is liquidity holes in corporate bond markets or just ridiculous generalised reporting conditions on markets that were not exchange based. So getting rid of these, or at least watering them down, would be a sensible compromise between practicality and moral protection. At least that’s the line I am willing to excuse the panel of top bankers currently advising Trump with.

Basel III is a bigger issue. If McHenry’s letter to Yellen is properly representative of new policy then it hits the EU head on. The EU has been proudly touting its new banking regulations which should identify weak banks (yes, done in style) and be part of the path towards a unified European financial system, whilst also allow the politicians to wave a huge moral flag in triumph. But what happens if the US banks are suddenly told they don't have to play by the same rules? They instantly have a competitive advantage unless the EU backtracks and loosens Basel III in response - Highly unlikely fot them to do such a massive U-Turn just because Trump has pushed them into a corner - or they immediately remove the US’s European banking licenses if they don't comply.

This is al the more interesting coming in the wake of Brexit where apparently the US banks are threatening to up-sticks for continental Europe, well let’s be honest, it’s a threat as none of them really want to go. France may well be offering sanctuary to US scientists and the world's bankers, but if it were really that great they would have gone there already.

There is a small version of the State of Liberty on the banks of the Seine in Paris and I was wondering if they should attach a plaque to it similar to the famous one in one in New York -

Give me your scientists, your bankers, your huddled masses yearning to breathe free, the wretched liberals of your teeming shore. Send these, the visa-less, Trump-tossed to me, I lift my high tax rates besides the red tape.

But if the US banks aren’t going to be playing to Basel rules there may not be that tide of bankers. Indeed, the UK would be looking pretty as an intermediary between the two. It would also support another idea I was nursing, the introduction of an offshore Euro market in line with the original Eurodollar market. If London launched such a beast the EU would not be able to control it yet it would provide a method for EU unregulated institutions to fund and lend Euros just as the Eurodollar market did for Russian held dollars when it was established. The great thing about the City is that it has thrived on bypassing regulations, or rather, creating the most efficient systems to mitigate their impacts. It's what it thrives upon.

But back to the markets, I am lost. I see risk piling up everywhere except in the markets, which are driving on upwards. I don’t need to list the European stresses but I think this sums up the EU's position pretty well.

There are so many possible outcomes to current uncertainties I am looking at the markets as a quincunx-  not a Harry Potter creature but another name for the 'bean machine' devised by Sir Francis Galton.

The box itself could even be used as a metaphor for Trump's policies. An Executive Order, or even just a tweet, is dropped in the top and it rattles down through so may deflecting processes that, though you think you have an idea where it is heading, the policy's final resting place may be some way off where it started.

Add in the rest of global politics and you end up with so many variables, or pins in the box, that the sum of paths may well mean that there are not any fat tails, but the standard deviation of the resulting distribution is a lot wider than volatility pricing is currently suggesting.

I am buying volatility now rather than direction. I was, or so far have been, wrong on that.

Markets move as man skis in Austria.

I'm on holiday in a ski resort in the Austrian alps. This means I have no time to read any in-depth market commentary, instead, I am glancing at twitter and headlines that are depressingly dominated by the old 'x happened as y happened' implied correlations.

So here are my own equally honest, but equally unuseful, ones describing today -



**European futures fall pre-market as tourist heard mumbling "Oh God, do I have to get up now?"**

**European equities rally on the open as porridge and coffee consumption rises.**

**US futures mirror European gains as ski boots tighten.**

**Oil falls as blazing sunshine lights up mountain tops.**

**USD/JPY rallies as snow conditions judged near perfect.**

**Turkish Lira weakens as hot chocolate and brandy sales rise.**

**Copper falls as multiple tight parallel turns impress.**

**Rio Tinto rallies as Woah, sorry mate, are you OK?**

**Gold falls as I think I’ve pulled something.**

**VIX loses ground as it's decided to have an early lunch.**

**Greek borrowing costs rise as wine, beer and pizza sales spike.**

**Austrian inflation much higher than expected as bill arrives.**

**US futures extend rallies as debate over where to go next continues.**

**USD/RUB higher as UK/Russian relations thaw on chairlift.**

**Italian stocks steady as disagreements break out as to whether you said take the red run after the pylon or turn right down the black back to the valley.**

**USD/MXN extends gains as he must be here soon, he can’t have got lost can he?**

**US treasuries slip as I do.**

**Zinc up as laughter breaks out.**

**Chicken consumption falls as thighs ache.**

**Bitcoin goes up as skiers go down.**

**Schaeuble says "We don't want to punish the British for Brexit” as British order Jagermeister and tequila yet state 'No, seriously, I'm not drinking that whatever it is’.**

**BTPs recover as ski boots discovered to be perfect dance shoes.**

**Mindspace falls in extended hours.**

**Markets close heavy as it can’t be 10pm already, can it?**

**Sterling rallies as loss of wallet is expected to restrict overseas spending**

A wall of no worry

The 20th of Jan has been an important date for me for the past 3 years, well before the election of Trump was even a glimmer of parody in comedians' eyes, it has been a turning point for markets. This year it has been even more special. The plan has been that any trend developing over December would accelerate into the start of the year only to reverse about now. As the trend has been Trump, then the 20th would be seen as either a confirmation of the trend or a tear in the fabric of space/time Trumpinuum.

So what is it to be? I missed the live speech due to other commitments, instead relying on my trusty market-o-meter of news, which involves looking at where the markets are and working out what the news was. So first sighting of prices gave me the impression that I hadn’t missed much. Wall Street up a bit, Usd/Jpy flatish, bonds unexcited and everything a bit disappointingly dull. So, I assumed that speech fitted in with exactly what the market was expecting.

I have always believed that Trump’s plan was to get into power by taking the mickey out of the stalwarts of truth, honour, discretion and humility, getting the revs of the shock and awe machine up to 8000rpm, before taking office and dropping into 6th gear for a much more sedate and considered journey at a calm 1500rpm down the next 4 years.

But then I watched the speech and my narrative was hit by a shockwave. Here was the same Trump speaking as though he had just started out on the campaign trail. The repetitious rants about making America great again, the rampant protectionism, the rhetoric without substance and even the paradoxical statements such as “When you open your heart to patriotism, there is no room for prejudice” had me aghast. This was not a Presidential speech. It was one from a man who is confrontational (criticising all around him), stubborn, self-opinionated and lacking any 'how' to add to the ‘what’

How did this fit with the lack of action the markets? The obvious answer is that I was wrong in expecting the markets to expect a statesmanlike speech instead it being exactly what the markets were expecting. Which now has me wondering if the markets or I have the first premise wrong. Mine being that Trumponomics rested upon a steady Trump hand taking the tiller and guiding a changing ship in a different direction, whilst the markets believing that Trumponomics is coming whatever, whether it is as aboard a shiny new hi-tech vessel or a disintegrating hulk of a fireship. But, the way I see it, there is less chance of Trump succeeding in an agenda that will result in outcomes that the last month's market actions are forecasting.

Then came the protests - I have a very pragmatic view on protest marches. They only work if you have a 'plan B' and are a stepping stone to something else. Having neither and you end up much like the Occupy Wall Street event, an excess of self-expression and street theatre. Though I have read that OWS was a success because - "For many participants and observers, though, its more compelling achievement was to embody a minimally hierarchical communitarian polity that combined consensual direct democracy with a high degree of individual autonomy, and also a voluntary sharing economy with the market logics and state service provision that dominate everyday urban life” Err what? Obviously very clever stuff but, meanwhile, JPMorgan is doing just fine thank you.

So, lots of people protesting against Trump is great as long as it achieves their objective of getting rid of Trump or changing his behaviour. Having heard his speech and the attitude it reflects, I cannot see him changing his behaviour until his policies have proved so disastrous in their own right he blames others for their failures and effects changes under the flag of 'Saviour from other’s failures'. Which is actually how he got to where he is. If Trump is a protest against liberal elites then the protests are protests against protests. It's a shame that (to paraphrase an old saying) two protests don't make a right.

As for protest marches against Trump in other countries, they are going to have even less influence over Trump (read 'none') though are probably effective cathartic outpourings of mass grief at his victory, much as the Anti-Brexit marches were and likewise will have as little impact on financial markets - unless it turns towards civil war, which is so very unlikely.

The other main Trump news of the weekend was the ‘so how many were there’ debate. Unlike a ‘guess how many sweets are in the jar’ school fete competition that sees you winning the sweets, there seems to be little point in entering the competition. What is the upside? It really doesn’t matter how many people were at his inauguration as it won't change the outcome of him remaining President for four years. If it did then you might as well scrap elections and have voters turn up in Washington and stand on one side of the river for one candidate and the opposite side for the other, to chose the winner.

The point of the issue is just how much of an issue it has become and how it is being handled by either side. The key observation is that Trump is valuing image over substance again. He is willing to take on the Press over anything that doesn't portray him in a favourable light. He is even accused of halting the National Parks Service twitter feed in response to them tweeting ‘HowManyWereThereGate”. But as is possible in today's news games there is, of course, a chance there was another good reason for that action. A chance.

Boiling the last two days down, I have seen an increase, not a decrease, in the similarities between the way Trump is managing his new estate to a couple of other famous leaders around the world and though it is very early days and far too early to draw any conclusions, I am starting to compile a list of potential similarities that I am keeping an eye on

Running on a nationalist agenda.
Blaming overseas influences for the country's woes.
Blaming your own press for misreporting the truth.
Controlling social media output.
Manipulation of truth.
Showing more conciliatory tones towards Russia.
The belief that forces within your own secret service are working against you leading to you awrranging an organisational Putsch.

Ok, it’s not a very long list, but its a start. Of course, if he finds himself without enough power to execute his will then he could take the Turkish route and award himself some more

"Power corrupts, executive power executes" Polemic Paine 2017

Now whilst my quizzical concerns could easily be debunked, IF I were to do what news wires do with implied causality, (eg. My cat had green eyes. You have green eyes. My cat got run over. Woh, you'd better avoid roads or wear blue contact lenses) I could suggest the USD is going to go the way of the Turkish lira, but then I guess the US doesn't have a current account deficit that needs funding from foreign direct investment, a huge budget deficit and nor is it strapped with vast amounts of debt. (chortle).

But seriously, the theme is that Trump is good for the dollar, primarily because dollars will be repatriated home in a patriotic manner (happened with Turkish lira for a couple of weeks until exhausted and those who had, were soon 30% worse off) and that growth will outpace interest rates which will outpace inflation. And there you have the nub of it. Growth, inflation and interest rates. the balance between the three is critical. It is in any economy but in the new Trump world, it is critical because though there are some strong opinions as to which way they go (apparently all upwards) it will be the relationship between them all that is crucial and the margin for error in predicting the differential derivative is huge.

The expectation for economic wonderfulness has been rampant, you only have to look at sentiment charts since Trump was elected to realise that it’s all on hope rather than reality, because reality has not changed fast enough to justify these spikes in sentiment. Small businesses appear to be those who have invested most in the Trump dream.

Charts shamelessly nicked from my friends at Macro Man 

CEO confidence

Uni of Michigan Consumer Sentiment 

 Small business optimism

So there we have it. Trump's speech has not given me a feeling of calm control. His reaction towards the Press and CIA appears to be as confrontational as ever and this falls upon a country with very high expectations. The markets on Friday took the speech in their stride but plenty of them were looking at each other for solace, with the final pit-prop of belief being the sentiment readings creating a "wall of no worry".

I am still struggling to see how Trump can square handing power to the people whilst stifling the Press and delivering non-crony capitalism whilst imposing greater controls on the free market. If I am not a complete outlier in my interpretations, there should be a lot more doubt today than there was last week and with it a reversal in the sentiment of the Trump trade and, with that, a fall in equities and the dollar.

 The carnage may start right here.

The end of the land of the free.

Mrs May has been top of the headlines as The Economist cover once again proved a negative indicator.

The weekend saw leaks of her statement with screams of terror from the usual sources as they sherry picked (like 'cherry picked' but in otherwise genteel front parlours) the headlines pointing towards a harder Brexit. With this came the knee-jerk narrative to sell GBP because that's what the simple programming that is currently being applied demands. This made two assumptions. First that May really is going to sacrifice all ties and the second that the result of a hard Brexit means that GBP should be yet weaker (weaker than the 15%-20% it has already fallen). GBP fell to 1.19something on Asia open only to recover and then languish around 1.2040ish for the rest of the day. This morning's commentary was that she has leaked her speech to prevent a market meltdown. But today saw GBP rally 3% to levels higher than where it was on Friday. What a complete and utter waste of time listening to the garbage on the wires. The only headline worth its salt would be

 **GBP RALLIES THE MOST SINCE THE LAST TIME EVERYONE SAID IT WOULD FALL**
but you just don’t see that,

I have come to the simple conclusion that the reason that the commentary is so wrong is because very, very few of those commenting actually trade the thing. The reason prices move is because people buy or sell in differing ratios upsetting the equilibrium of the assumed fair price. The reasons that people trade is hugely complex. The drivers behind the individual trading decisions can vary massively. Commentators can not accurately define why GBP is lower or higher unless they have actually spoken to a person who has traded it. Here I am not talking about an FX salesperson who has transacted a trade for someone else, nor even a spot FX trader (who manages flow but rarely knows the ‘why’)  but the fund manager, central bank, sovereign wealth fund  manager, hedge fund or real money PM, or collection of electrons in an algorithm who actually decided to swing the bat. And funnily enough, practically none of them will ever a) want to tell you b) want the fact that they have traded be known in the first place.

As my friend JG said 

"Herewith, the slime trail ident of a clueless commentariat, machines and dickheads".

False news, bullshit, selective reporting to fit agendas and so on. It’s a theme throughout politics, markets, social media and, currently, life in general. Why is it so? Because we are awash with free stuff. Said to be free, but not free. The quality of free stuff is currently so low that I am predicting a backlash against ‘free’*. The easiest form of marketing includes the words ‘new' and ‘free, but 'free' has moved on from 'free’ apps just stealing all your personal data to data that is completely fallacious. Which leads me to believe that the days of ‘free' are near an end. It has started already with many once free publications going subscription and many good bloggers either trying to charge, throwing in the towel or moving to a broader platform that provides an income (e.g. the excellent Macro Man).

Information has a hierarchy of value. Untruth, Opinion, Truth. As with any commodity, the value of which will be defined by supply and demand. As scarcity drives up prices so it will be that the price consumers are willing to pay for truth will increase. I am now willing to pay for verified news that comes with a guarantee rather than a disclaimer.

Ok rant over, back to financial markets.

My mythical turn date is effectively upon us. The first option expiries of the year combined with Trump's inauguration speech. As expiries are tomorrow, I have taken the liberty of front running the Trump speech by putting on a selection of trend reversal positions. Mostly through options as volatility has been crushed. FX, apart from obstinate dabbles in GBP, I have left alone as the dollar has already turned (I do love the EUR/USD 1.1000 magnet, it’s such a parity-party pooper). In equity indices, the FTSE has been in my bag for a few days now but I have added Dax puts, spread over the next 4 months, to back my views that although Europe has growth,  growth is actually going to be a problem with regards to arguments over ECB policy. And for a narrative twist, I am going to invoke my first rule of narrative "Change the subject before they notice you are wrong”. So if I am looking for a turn in markets against the recent narrative then, rather than deny the narrative, the subject will change. Wrong on the market responses to Brexit news? Wrong on market responses to Trump? Then change the subject and Europe is there ready as it's been out of the limelight since Italy didn’t  last blow up.

Emerging markets is where I really should be playing as they have been doing so well, but I am loath to. I'm more willing to wear a downdraft there. My bête noire of TRY is still proving that political upheaval and fundamental realignment of the political seismic plates swamps charts, oversoldness and historical value measures. The only EM counter-trend trade I have put on is long Mexico ETFs.

Oil is a toughie here. A downdraft in risk should see oil lower too. Add that to the well noted positional excesses and I should really be getting out. But I am still hanging on in there with dodgy oil stocks. I know there a hundred reasons to sell it but I’m going to hang on for $65. Commodities, in general, are frothy but I am looking at them returning to favour as part of the super-cycle.


I only have one comment on the World Economic Forum - The World Economic Forum is now like the Glastonbury festival, where those who go, go to be seen to be going; the headline acts are past their prime; their old songs are nostalgic but their new ones are solely self-indulgent; but, more importantly, it isn’t the performers who set the trends these days - it’s the crowd.



* I include this post as an example of free stuff which is opinion rather than truth and has little value or cannot be verified as true. Read the disclaimer!