Wednesday, 12 April 2017

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.

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
A contribution from an Orpington reader would make my day. though is now very unlikely.

Monday, 27 March 2017

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. 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.

There is more of the story at that link.

With thanks

Wednesday, 22 February 2017

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 predominanyly text.

But there is a stronger driver in the fesire 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 then the more likely the reader will be alienated and the les 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 of 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 upon others.

Tuesday, 21 February 2017

PMI. Unlimited Supply

If the Sex Pistols ever did monetary economics. Their epic 'EMI' would have been more like this.. PMI

Cash in unlimited supply
And now here's the reason why
It was a monetary game
All the outcomes are the same

P M.I. P.M.I. P.M.I.

Too many people bought the monetary thrust
Too many people bought the ECB trust
An unlimited amount
Too many buyers on account

P.M.I. P.M.I. P.M.I.

Stock bears are crucified
Deflation has all but died
QE's an addition, only ruled by one
Draghi forever, ever, ever

You thought the central banks were faking
With all that money making
You didn't believe they're for real
But look, you buy their apperel!

Don't judge a bond by its cover
It's now all about one number
And blind acceptance of a sign
inflation's just a rising line

P.M.I. P.M.I. P.M.I.

Monetary expansion
With an unimited supply
That is the only reason
Any stock is a 'good buy'

French new high  P.M.I
Japan's a storming P.M.I.
I tell you this number is the game P.M.I.
Every country is the same P.M.I.
Inflation now the pressure P.M.I.
You didn't suss the monetary tool P.M.I.
Unlimited supply P.M.I.
Hallo P.M.I.

Tuesday, 14 February 2017

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.

Tuesday, 7 February 2017

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**

Sunday, 22 January 2017

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.

Tuesday, 17 January 2017

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

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 bĂȘte 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! 

Tuesday, 3 January 2017

With consensus comes conceit.

Well that’s 2016 done and, for many, 2017 might as well be done as well, because it's all just soooo obvious what will happen. All the positions are loaded and Trump bullish investors might as well go into bear like hibernation only to wake up next December to cash in their riches.

But with consensus comes conceit.

US - Trumponomics backed by price action has reaffirmed the belief in the trade, which is always dangerous. Now today we have a piece of news which is cited as evidence of Trump intentions becoming reality. Ford has cancelled its plans to invest $1.6bln in Mexican production instead opting to spend $700m in Michigan thus creating 3500 jobs. The verbiage from Ford said that they had been influenced by Trump. Whilst everyone is holding this news aloft, much as a holy relic to the church of Trump, I am a little more cynical. Does $700m invested in Michigan really buy you the same output as $1.6bln invested in Mexico? If not then the announcement is more like a reining in of future overall production, cloaked under a patriotic statement. For this to be otherwise Ford would be having to wear an instant labour cost differential as well as the continuing effects of a strengthening dollar.

I am going to refeence an old Anglo-Saxon (actually Danish) king of England here, before you just think I'm being rude (though I leave it to you to decide intention), but with dollar strengthening it is going to get harder and harder for King Cnut to hold back the trade tides. Trade occurs because of price gradients. If the gradients aren't that great then simple regulations are fairly effective as the cost of circumventing them exceeds the price differential to be gained. However as the differential increases more is prepared to be spent in circumvention (if this wasn't the case there would be no cocaine in the USA). However, the price differentials are only increasing as the dollar rallies against the rest of the world. Companies may well like to be seen to be paying lip service to the new President but underlying it they will still be wanting to do what all companies are designed to do - make money for the shareholders. So statements like Ford’s have to be picked through. For example, saying they’ve cancelled a $1.6bln new plant doesn't mean they aren't ramping up investment in existing plants. In my eyes, the Ford statement is an offering of flesh on the altar to Trump, but it certainly doesn't mean that Ford aren't planning on eating the rest of the beast.

UK - PMI storming - UK manufacturing is enjoying the benefits of a weak pound. Meanwhile the UK's ambassador to the EU has resigned. If you look at UK news you have to split out the now from the future. It’s much like trading the steepness of a yield curve. Since Brexit, mainstream forecasts had the UK on a steady downward path arriving in, say 3 years time, at a point of Brexit gloom. As we haven’t had any economic doom yet the gradient towards that gloom point is assumed to be steepening as time decays. The PMI is a lift in the short end of the curve and the resignation is a push lower on longer term expectations. A curve steepener in the negative sense. But playing the curve of UK expectations out to three years also has to involve playing the expectation of Europe's future. I.e. its own curve.

Europe - I am a lot more pesimistic about Europe's ability to hold it together through 2017. Not that it will cease to exist in 2017, no, but just that the edges will start to fray again. The EU project has often been liked to the Titanic. A vessel with design flaws that wont be able to weather hitting the iceberg. There has been an interesting twist to this analogy in that a new theory has emerged as to why the RMS Titanic failed to withstand the impact. A fire, that had been raging in its coal bunkers, had weakened the hull structure.  So applying that theory we could say that previous EU crises have not been the iceberg but the fire in the coal bunkers, critically weakening the main structure of the EU leaving it unable to withstand the next shock.

What will be the shock? Italian debt can only be camouflaged in ECB vaults for so long. German/ RoEU imbalances can only be massaged for so long, France can only fudge it’s social economics for so long and finally the ECB can only keep on buying assets for so long before growth and inflation rise to a point to expose the asset buying as not the flagged cure for deflation but as an internal epoxy resin glooped over the cracks between the Core and the Periphery. When the ECB can no longer be seen to be justifying asset buying for monetary policy reasons then the true value of risk premia will return to the markets. Probably the biggest damage that Trumponomics will inflict on global markets is not directly from how the US faces the world, but in potentially removing the only excuse that central banks have for underwriting private investors' risk. At which point the Emperor will be revealed as Lady Godiva.

Trading- I have been anticipating a reversal of markets once the new year is underway marking the 20th Jan as a good potential turn date but as it gets closer I am geting more twitchy towards signs that turns may occur sooner. Today was certainly interesting and has had e start to build shorts in risk. Oil has had an impressive reversal, as has USD/JPY and US stocks from the highs. Add in copper and it is looking pretty generalised. Except for one index which I would have thought with a turn in US stocks, commodities and the USD should be falling comparatively hard. The FTSE. But it hasn't. So I’ve sold it.


Post Script..  Re Ford.
There you go.