The Pluto Crisis.

I asked the simple question this evening "Has Pluto been reclassified as a planet again yet", having witnessed the meteoric, or perhaps 'planetary', rise of Pluto's popularity. Its exclusion from the Solar System swiftly turned into a Twitterfest of analogies with the fate of Greece. Rather than leave that 'fest to fester in the ADHD black holes of past tweets I thought I should assemble them in one place in memoriam. So with huge thanks to my sparring partners @sanderwagner and @zatapatique for the wittiest in the list and to assists from many other dear friends, here is -

The Pluto crisis timeline -

Pluto only accepted into Solar System after GS made it look bigger than it is.

"The solar system is 'irreversible'", says Sun.

Pluto to hold referendum on accepting gravitational pull of Solar System in exchange for sunlight.

UK's opposition MP Dianne Abbott signs letter of solidarity with Pluto in its fight to break free from laws of physics.

Pluto to temporarily #plexit the Solar System if it doesn't follow path of other planets.

Asteroid belt divides planetary attitudes towards Pluto.

#Plexit is not an option

Jupiter blames Plutocrats for astronomical breakdown in trust.

Alpha Centauri puts pressure on Solar System to come to an agreement over Pluto. Worried about destabilising Milky Way.

"I’m not going to tell you. It’s somewhere on this moon." Pluto on existence of a new plan to stay in the solar system without accepting gravitational pull.

Jupiter and Pluto locked in precession until agreement is met. Gravity of situation not to be underestimated.

Sun proposes plan for all planets to lend mass to Pluto until it can grow by itself.

Pluto's newly discovered water to be privatised under new plan in exchange for another eon of continued sunlight.

#ThisIsAnEclipse starts to trend.

"I shall wear the astronomers' loathing with pride" Pluto.

Gallifrey informed it will also contribute mass to Pluto even though it's within the constellation of Kasterborous.

Ambrose Evans Pritchard: "Pluto reinsertion poisons solar system as backlash mounts against planetary servitude"

"An imperfect solar union" says asteroid.

"Ill conceived from the start. How can you have one central sun for such vastly different planets?" -Nobel prize winning astronomer.

Proof of Alien Activity on Earth

I am somewhat stunned at the resolution of the bijou Greek debt problemette. The idea that resolution, after extreme dissent and acrimony, was only found once Merkel and Tsipras were locked in a room under compulsory orders to come to an agreement is just bizarre.

Just what was in that room that persuaded the two leaders to come up with a proposal, by themselves after months of team negotiations, that was guaranteed to alienate both of them from their electorate? Was the Pope in there revealing the apocalyptic third secret of Fatima? Or was it just the US secret service revealing all the goat photos they have on them both? Or was there a representative from Nevada’s infamous Area 51? Because I have had to reach into my drawer, pull out and dust off my tin foil beanie (last employed when I spoke to my estate agent) to filter out some of the radiation that the EU is trying to use to take over our minds.

The deal is less permanent than applying Polyfilla to the Grand Canyon (though there’s an advert idea for Polyfilla) with the divisions now apparent across Europe as gapingly wide and deep. What a load of bollocks.

This newfound EU skill in bullshit diplomacy has even been extended to foisting EFSM Greek rescue contributions on the UK. How clever is that when they should be trying to curry favour ahead of the UK EU referendum? OK, perhaps Schaeuble is wanting UK out before they are even in the Euro, but he’s too clever for that. It must be a higher level of control .

So my highest ranking probability for outcome for all this, or as the banks like to put it, my 'base case', is that this planet is indeed populated by a master race of aliens. Eat your heart out Von Daniken, David Icke, Christian Scientists and all you nutters trying to dig through ancient archeology for proof, you been wasting your time. You have to look no further than the recent activities at very high levels in Europe for proof of alien existence and their influence on this planet.

And if you don’t believe me? Ask the former Canadian defence minister, who probably came to his conclusions whilst at a European Summit. Dan Brown? There's a book in this for you.


A list of things the Aliens are obviously responsible for

Nazca Lines.
Greek referendum.
My missing socks.
EU proposal to Greece.
Flight MH370.
Tsipras's U-turn after a mind replacement.
Enforcement of EFSM contribution on UK.
Pyramids.
French foreign policy.
Greek government's interpretation of how to represent the outcome of the referendum.
EE Customer service.
Greece’s acceptance of EU proposal.
London tube driver unions.
Atlantis.
German finance minister's planet conquering psyche.
Donald Trump.
Jeremy Corbyn’s ouburst on Channel 4 (his lizard face was almost seen). 
Chinese stock market.
Iran nuclear deal.
End of the dinosaurs.
The Bristol Pound.
Mass hypnosis of the Greek populace after the EU deal.
Everything in the Daily Mail.
30 miles of inactive roadworks on the M3 - obviously an extraterrestrial signalling device (see Nazca Lines).
Mark Carney’s paralysis over UK rates.
Sunspots.
EUR/USD exchange rate
Artisan food markets.
Bitcoin.
The Tunguska event.
EU summits.

Last week in pictures.

Deadline devaluation - Quick thoughts on the procrastinations

Deadlines come and deadlines go. But deadlines really aren't what they used to be. Much as red lines in Greek economic policy are as flakey as dry chalk on an old wall, EU deadlines are as dead and liney as a snake on speed. Sunday is past and there is no deal. The Greeks have two days to implement changes as lack of trust means that reforms now come before the money. Once in place there will be a further deadlines before which to complete new agreements in time for further payment dates towards the end of July.

Meanwhile the stranglehold on the banks via ELA will keep the pressure on the Greeks to do something. Delay is no longer a negotiating advantage to Greece. It now works in the EU’s favour.

I am still waiting for it all to boot off on the streets of Greece. So far material supply shocks with respect to imported goods haven’t filtered through to the shops (well in any meaningful way) but it can’t be long. The video of Tsipras going home to have his own Neville Chamberlain moment with a piece of paper even more onerous than the one Varoufakis returned with, is going to become a classic in future ‘how to sell’ courses. We are yet to see whether it's a success or failure example, but either way it’s going to be a corker.

France - Germany rift widens. As discussed many times in this space France has vested interests and frightening Deja Vus to defuse. France going behind the Germans' backs to ‘help’ the Greeks with their proposal (read as ‘cheat at their homework’) has done nothing to foster trust between the two. We know that France will do anything to protect its Eurobaby, but what is less understood is that so will the Germans. Even if it requires an amputation.

Hard response to Greece fits in with any German plan to use Greece as an example to the other villagers southern countries. A rotting corpse from a lamp post. Whilst this may focus the minds of the politicians and populace of the peripheries, it will have a destabilising effect on their debt. If Greece is hung out to dry then the threat function of what can happen is equally reflected through their bonds markets. These now have to reflect the additional risk of being cut adrift so yields will jump higher. If you are constantly threatened at gun point, you may well be more willing to comply, but your life insurance premium is going to rocket.

It also means that at the first hint of slowdown, recession or budget squeezes the vigilantes are going to really go for the peripheries with less fear of meeting a coordinated EU defence.


Markets - Friday had all but discounted an agreement, let's say 90%, the highest hope function of the past 3 weeks. The ship is back on the rocks and pricing of equity and European bond markets should be heading back to the disaster style levels but they have opened up on the futures as I write only marginally down (Spoos down 12). But Eur/usd is steady and no-one really seems to care that much. Odd. Odd to the point I am shorting index futures on a feeling that the move lower will be pretty sharp.

-----

Post script - 8.30am Ldn
I wake to find a deal has been done, it may be a classic European fudge based deal but the markets love it and I m sitting on losses.  But even if there is a deal between the Greek Government and the creditors there still has to be a deal between the Greek Government and the Greek people. As the Kaiser Chiefs sang "I predict a riot"

DIJSSELBLOEM: ASSETS WILL BE TRANSFERRED TO FUND TO BE RUN FOR PROFIT AND USED TO PAY DOWN DEBT; TO CONTRIBUTE TO BANKS RECAPITALISATION. That sounds like asset stripping into a non sovereign entity controlled by Creditors. There is monetisation of assets. In other words leasebacks. Like a few islands? Mykonostadt? Corfurt? Rhodesterdam?

And finally, the latest picture of the deal signing with Mr Tsipras and Mr Tsakolotos about to take their seats (left) .

2011 Euro redux -

We may be heading for another case of can kicking but it is worth remarking on how far the can has already been kicked. I was looking through pieces I had written back in 2011 on the Macro Man blog as Eurocrisis Part 1 was kicking off and I was struck by just how apt some of those posts are today as they were then. Merkel and Germany were getting just as much flack for intransigence as they are today.

So here are three pieces I wrote back then that are worth resurrecting

First Tennyson's 'Charge of the Light Brigade'

The Charge of the Euro Brigade.
First published here Oct 2011

Half a year, half a year ,
  Half a year onward,
All in the valley of Debt
  Rode the unfunded
'Forward, the Euro Brigade!
Charge for the loans they said:
Into the valley of Debt
  Rode the unfunded

'Forward, the Euro Brigade!'
Was there a bond unpayed?
Not tho' the Eurocrats knew
  Some one had blunder'd:
Theirs not to make reply,
Theirs not to reason why,
Theirs but to do or die:
Into the valley of Debt
  Rode the unfunded

Spending to the right of them,
Spending to the left of them,
Spending in front of them
  Follied and blunder'd;
Storm'd at, all rushing to sell,
Boldly they bought and well,
Into the jaws of Debt,
Into the mouth of Hell
  Rode the unfunded

Flash'd all their policies bare,
Flash'd as they turned into air
Shattering the investors there,
Meetings and summits while
  All the world wonder'd:
With policy of mirrors and smoke
the global economy they broke;
Chinese and Russian
Reel'd from a rate cutting-stroke
Shatter'd and sunder'd.
Then they rode back, but not
Not the unfunded

Selling to right of them,
Selling to left of them,
Selling behind them
  Follied and Blundered
Storm'd at, all shot up to hell,
While investors continued to sell,
They that had bought so well
Came thro' the jaws of Debt
Back from the mouth of Hell,
All that was left of them,
  Left and unfunded

When can their story fade?
O the wild charges they made!
  All the world wonder'd.
Honour the blunders they made?
Honour the Euro Brigade?
  Forever unfunded!

---------------------

And looking back at this take on Sinatra's 'Lady is a tramp" with regards to the German Chancellor

That's why the Lady is a Tramp -
First published here Oct 2011

She gets impatient, over the Greek debate
She'll never rescue, lazy people she hates
She loves to tighten, just don't do it late
That's why the lady is a tramp

Won't go to Athens, there's nothing to see
Doesn't like crap games, with the ECB
Won't compromise, with the FDP
That's why the lady is a tramp

She loves the free, free Germany
Export ecstasy
PIIGS broke, but it's "OKE"
Distrusts the French, they're not in her camp
That's why the lady is a tramp

Doesn't like dice games, with the Finns or the Nords
Rides in Mercedes, not Seats or Fords
Will dish the dirt, wont sign the accords
That's why the lady is a tramp

-------------

And finally back to Tennyson, Merkel as the 'Lady of Shalott',

The Lady who Shall Not.
First published here Oct 2011


On either side of Europe lie
Yields on bonds that reach new high,
All up on "risk", not CPI,
And all pray for a bailout by
The place that just won't spend a lot.
And up and down the people go,
Gazing where the credits blow
Yet hope a lead the Germans show
So please don't say "shall-not".

Knuckles whiten, lips a quiver
Little rumours dance and shiver
Through the markets, run for ever
About the union they may sever
Will they please just spend a lot
Four bust nations yet o'er all towers
Committee rule that lost its powers,
Yet up against this mess now cowers
The Lady who "Shall not"

Eurodome! Two men enter, one man leaves

With the Greek negotiations fast becoming one of face saving excercise for both Germany and Greece, Schäuble and Tsipras are becoming the competitors in the Mad Max Thunderdome. Two men enter, one man leaves.





Welcome to another edition of Eurodome!

Announcer -Listen on! Listen on
This is the truth of it.
Fighting leads to killing,
and killing gets to warring.
And that was damn near
the death of us all.
Look at us now, busted up
and everyone talking about the end of the Eurozone.

But we've learned by the debt
of them all. Eurotown's learned.
Now when men get to fighting,
it happens here.
And it finishes here.

Two men enter, one man leaves.
And right now,
I've got two men.
Two men with a gut full of fear.
Ladies and gentlemen, boys and girls. . .
. . .dying time's here!

He's the ball cracker.
Financial Death!.
You know him. You love him!
He's Schäuble

The challenger,
Direct from out of the Wasteland.
He's bad. He's beautiful.
He's crazy!
It's Mad Alex !

Eurodome's simple. Get to the
money, use it anyway you can.
I know you won't break the rules.
There aren't any.

Remember where you are.
This is Eurodome.
Your voters are listening, and will take
the first man that screams.

Prepare!

Two men enter, one man leaves!
You know the law!
This is Eurodome!

[A violent fight ensues resulting in Mad Alex pinning down Schäuble]

Crowd Kill him!

Onlooker - No, no! Look at his face!
He's got the mind of a German.
It's not his fault.

Mad Alex - I'm sorry.

Schäuble -This wasn't part of the deal.

Mad Alex - Deal?! What do you mean, "deal”?

Europa - You must have tasted it.
It was in your hands.
You had it all!

Mad Alex What do you mean, "deal"?
No more Euro, This place... finished!

Europa -No, little man.
We've only just begun.
Do you think I don't know the law?
Wasn't it me who wrote it?
And this man has broken the law.
Right or wrong, we had a deal.
And the law says,
"Bust a deal, face the wheel."
Bust a deal and face the wheel.
All our lives hang by a thread.
Now we've got a man
waiting for sentence.
But ain't it the truth?
You take your chances with the law.
Justice is only a roll of the dice...
...a flip of the coin,
Fix lt.

Mad Alex - You run Eurotown.
You fix it.

And down again

And there you have it, everything rolled over soon after the last post and we started the European open testing lows again.

News and comment has seen even the nice Mr Noyer saying that with no agreement ELA will have to be stopped and that he is very concerned over the outcome. It's naturally unsettling to hear the pilot of the plane warning how scared he is of an imminent crash. In fact the chorus of 'very concerned’s has spread through all official ranks all the way down to minor UK MPs. That must be the political equivalent of a theme going ‘Tabloid’.

Though the potential outcome probabilities for Greece have not changed overnight, expectation appears to have, with many more expecting Sunday to be a rubber-stamping of an exit visa into the Greek passport.

Meanwhile the other shock function to everything has been China. A move down in the stock markets of 30+% has noise levels rising to 'deafening' and the wealth destruction involved vs book value from the highs is, on paper, huge. But (and here I get beaten up by many of my Financial Twitter friends), considering where the market has come from and were it is back to, I am not as concerned as they think I should be.

Wealth construction/destruction is indeed assymetric but all the money that has actually been lost has to have gone somewhere. Leverage is the killer though and there are two types of leverage on a stock bubble. Borrowing to buy the stock originally and borrowing against the book value of the stock to spend on lifestyle. Now in the case of housing bubbles, which are used as an example of wealth destruction when bubbles break, there were huge knock-ons as increases in book values had been used to borrow to spend and change lifestyles which were then exceedingly hard to readjust down. But in the case of Chinese stocks they were at this level earlier this year and I find it hard to believe that the rally has had time to cause dramatic irreversible lifestyle changes.

Leveraging to buy causes debt stress for those that bought but for every penny spent on a stock someone recieved that in payment. The move down has been redistributive as far as the real non-book wealth goes. Companies issuing at the highs cashed in, those selling cashed in but we are only hearing about the losses. Even those losses for the unleveraged aren’t that large. If we look at Chinese fund returns since Jan1 2015 we can see that they are down but not a lot.

I thank my friend @BrokenBanker for the following - 

which is about the same as we have seen in FTSE on which we haven’t heard a squeak. 

We know that catalogues of Chinese stocks are closed frozen holding them from dropping further but the shape of recent falls is panic and the volume of noise over it is at crescendo. Everything associated with a strong china trade has been washed out too with iron ore making 5% distress moves. Of course if you are in agriculturals it's the other way around. 

The concern is that China is not able to control an economy that is under pressure as well as a stock market crash. But China is China. The Chinese Government controls everything and has proven constantly, to the despair of China bears over the last 5 years, that control often produces results that are unwanted to the speculator but very much wanted by the controlling regime. The better question is not whether the Chinese can control things, but what they want the outcome to be. The terror reported upon the faces of Chinese stock brokers and punters may well be what they want. And driving the speculative longs out of the commodity markets has just made the deliverable a lot cheaper. 

And now what do we do? Risk was indeed sold off heavily from the last post, the distress noises first thing this morning was high again. Price action this morning has seen things stabilise and now that the US has opened up it's interesting to see SPX stuck around that gamma target of 2060. Whilst my feeling is that a Grexit on Sunday is very likely I have never underestimated the EU's ability to protect it's baby even if it does involve schemes and policies straight out of the Twilight Zone. With this in mind I have taken back shorts bought some bombed commodity/china linked suff and will step back off the field and into the stands for the next four days. Unless of course something breaks before then.. or I get bored.  

PS.. Gone a bit quiet from the German corner. Someone trying to gag them with a star spangled banner? 

Cyclists and Juggernauts

The rule of 'fade the mood’ has been playing out wonderfully over the past couple of weeks and if the fade of bad news on Monday morning wasn’t impressive enough, fading the Varousectomy induced rally was stunning. To cap it all, the firework of volatility gave us a third thunderous blast as markets ripped back higher (from a position that looked pretty horrific at one point) to the oohs and aahs of the watching crowds and the WTFs of the participating traders. 

Playing the rule of fade we should now naturally be looking for everything to fall over again tomorrow or Thursday, but before we do let’s just add a few things together. 

First the anatomy of today's dump. Though things started quietly, there were early signs of bond switches that probably wouldn’t be picked up on indices but were interesting, High price bonds of high coupon were being sold and low price bonds with low coupons of same credit and duration were being bought. Why? Well one would imagine that if you were to think your bond were ever to take a haircut and be worth, say 50c in the Euro, then you’d rather have paid 90c for it rather than 120c. 

Meanwhile oil continued to slide. Oil stocks have suddenly accelerated lower and my normal bellwether strange ones are now only just off the lows they reached when WTI was at $44, indicating something deeper going on.  US equity futures had pushed higher overnight and were looking perky most of European morning, looking as though the US was bored of Greece and happy to start the buyback without Europe, but when they opened everything melted. 

This handily married up with news that Greece had not brought their homework to the EU summit, instead saying it was in the post. This appeared to catalyse a dump that many had expected on Monday only to have been squeezed out of. The dump itself was a good old fashioned risk off dump across everything. Even Gilts rallied 2 big points. The anatomy of the dump was looking great until 4.30pm London close when everything did another volte-face. 

As I write, most equity indices are back to their starting points on the day and other stress indicators have bounced similarly well. I would normally read the price action as a clear indication that a bottom is in and the only way is up, citing candlestick hammers, mood blow offs in 'risk everything', margin call clear outs and the rest of the momentum indicators I watch. But in light of the fade rule of the past few days I can’t believe it. 

Though Greek news might be boring to the US players, it is not over by a long chalk and I must insist we all refer back to rule 1 of the EUroad :- The French, Spanish, EC, Greeks etc are like cyclists, being more harm to themselves than other road users, whilst Germany, ECB and IMF are 18 wheeler juggernauts about to turn left ('right' for my EU/US readers) at the lights without checking their mirrors, to be ignored at your peril. Especially if you are a cyclist. 

France, even if it is being backed by the US, can say what it likes but an ESM decision has to be unanimous. Germany and the Northern brethren are key and though the US has considerable clout over Germany, particularly with regard to defence in a time of Russian sabre rattling, Merkel has to be aware of her position too with regard to the domestic voters

I have just read a fascinating piece by Abrose Evans-Pritchard. I normally ignore his Eurodoom pieces because of their monotonous nature but this one is fascinating as it is stating, as fact, details about Syriza's dire position. Detail that would be just too divisive to make up. It claims that Syriza have got themsleves into a jam not having wanted to win the referendum but are now forced to go to Brussels and only return with a debt reduction deal or face uprisings against them at home. Which is much the position Merkel is in as she too cannot now be seen to back down. We have two leaders who have both been pushed into the gladiatorial arena with their baying supporters demanding a death. Whether it be at the hands of the other or at the hands of the crowd should they return unsuccessful, one of them has to be seen to go down and the German has the better armour and a longer spear. So whereas before the referendum Tsipras was damned if he did and damned if he didn't, he's now dead either way.

The EU has a track record of anaesthetising problems to sleep with a cocktail of filibuster and complexity of solution and though we seem to have another final deadline, Sunday, I am pretty sure that if someone were to check the patients ECG it would already be seen to be flatlining. 

So wherefore markets? This melt and bounce can be partly blamed on huge option gamma in S+Ps around the 2060 area whipping up short term moves but also on the latest about turn on opinion with respect to a deal. But, please see rule 1 above of the EUroad, the noise is once again coming from the French and EU Politicians with not a squeak from the North as far as compromise goes. So until we hear  something consiliatory from the Juggernauts I am still looking for another fade, but this time an even bigger one. 

Watch out below

-----
Footnote - It looks as though a late bid has come into the auction room from the red corner. Russia saying no problem if Greece want to borrow from BRIC bank http://tass.ru/en/world/806684

Which reminds me of this post from January which now stands more of a chance of playing out as a reality, http://polemics-pains.blogspot.co.uk/2015/01/greece-turns-singaporean-after.html. Greece remarries Europe, steals the joint bank account and runs off with a new partner

Updated Trading Aphorisms

Updated Trading Aphorisms

OLD - Buy Low Sell High .
NEW- Buy Low Buy High and demand the authorities intervene when the market drops 30%.

OLD - Cut your losses and run your profits
NEW- Cut your losses and find another career.

OLD - Never a lender nor a borrower be.
NEW- Both a lender and a borrower be by lending to low quality risk, repackage the debt into credit tranches and selling them on to pension funds taking at least 5% for yourself on the way .

OLD - Look after the pennies and the pounds will look after themselves.
NEW- Look after your penny.

OLD - Compound interest is man’s greatest invention
NEW- Compound interest is man’s greatest nightmare when deposit yields are negative.

OLD - Buy support, sell resistance
NEW- Sell support buy resitance, there are bound to be a load of stops on the other side.

OLD - The trend is your friend
NEW- The trend is your friend until it runs off with your money and your wife

OLD - Never sell a new high
NEW - Never sell a new high as the UK Government is making it illegal to sell new legal highs..

OLD - Sell in May and go away
NEW- Sell in May to move the fix and be put away

OLD - You don't become poor taking profits
NEW- You don't become poor taking profits, unless they don't cover the carry.

OLD - Never double up on a loser.
NEW- Double up on a loser and then sue the issuer fourfold.

OLD - Always check the small print
NEW- Never check the small print, just sue for misselling.

OLD - If in doubt, ask.
NEW - If in doubt, don't tell anyone and do more until you take your bank down.

OLD - Yield = coupon/price
NEW - Yield = coupon/price + hope - haircut

OLD - Discipline discipline discipline
NEW - Discipline Compliance HR

OLD - The charts don't lie.
NEW - The charts don't lie about the past but they do about the future.

OLD - Scale into your position.
NEW - Leverage x500, buy Chinese stocks before its too late, adopt your fetal position.

OLD - Trade with your head, not your heart.
NEW - Trade with your head, not your junior. He can't fire you if you lost on the same trade.

OLD - Never invest more than you are willing to lose.
NEW - Never invest more than you are willing to lose, unless you are Germany lending to Greece.

Tsipras after the Varousectomy - Jaffa or Studmuffin?

First a quote from the man whose name I borrowed for my own. (h/t JG for bringing it to my attention)

"Power concedes nothing without demand. It never did and it never will. Find out just what people will submit to, and you have found out the exact amount of injustice and wrong which will be imposed upon them; and these will continue until they are resisted with either words or blows or both. The limits of tyrants are prescribed by the endurance of those whom they oppress.” Thomas Paine

Let's look at what happened in news and markets over the last 12 hours.

-No Vote - Instant conclusion Greece is out of EU and no deal possible
-Base cases of banks swing to Grexit, though bank base cases are as solid as jelly these days and ought to be examined under high frequency trading regs.
-Equity futures were down 2% shortly after Sunday night/mon morning open.
-They recover into Monday opening when suddenly Varoufakis steps down. Or rather is pushed under a bus by Tsipras on the basis that there is more chance that Eurocrats will reopen deal talks if it isn't with him.
-This is naturaly seen as positive and a pointer towards a willingness to satisfy EU conditions for further debate.
-The markets then stepped up their rally and we are now trading at levels that would be considered normal in any other day.
-Twitter and media reek of disappointment and Robert Peston once again gets it wrong when calling for market disaster last night.

This is not how I saw it panning out. The original plan was to see markets dump, the media hype go into overdrive and continue recycling late Sunday comments from Germans that a deal was even further away, culminating in a blow off spike of nastiest tomorrow only to see a forced rescue/resolution kick in from the EU and a bounce ensue. But the ‘Varousectomy’ bounce has changed that and I am now wondering if this is a resell level for further disappointment as the markets have so suddenly swung to pricing a compromise.

But what compromise?

The No vote hardly opens up room for compromise from the Greek side even if the new Greek finance minister is a great guy and is much more pro EU. The vote has not so much even Tsipras a mandate, as he claims, to negotiate a deal that involves debt forgiveness, but locked him in to only being able negotiate a deal that involves debt forgiveness, which was the red line that the EU would not cross in the first place. So what’s new? The room for compromise is less than it was before the vote unless the EU backs down.

Will the EU back down? On the face of it there is no reason for them to change their stance. If anything the chances of it are lessened after being told No by Greece (I was very surprised even the regions dominated by tourism were such strong No supporters). The quality of German rhetoric appears unchanged but the volume of their rhetoric does appear to have been turned down this morning whilst that coming from the French appears to be turned up. The French / German interface is the point to now carefully watch for clues towards EU compromise. Though I can’t for the life of me see why negotiations now stand more success just because the Greek Turkeys have voted for Christmas.

So now I wonder if the price recovery we see is totally a reflection of discounting good Greek news or encompasses anything else. But I can't see it (what with China shakedowns and oil tanking)  other than fighting a fickle short term positioning. That positioning is now most probably set for yet another swing as German hardline attitudes are reaffirmed indicating that, despite what Tsipras is saying, his potency has been reduced after the Varousectomy and he  is now firing blanks as far as the EU negotiators are concerned. The Jaffa of Athens.

So perhaps it is best to play the game that has seen us fare best throughout the whole Greek debate. Fade expectations and expectations now appear to be for a deal. This week's price action already looks like last week's.

Oh! We don't want to lose you but we think you ought to go.

In 1914 a recruiting song was published to encourage men to leave for the front. I can hear this slightly different version emanating from Northern European halls after the Greek referendum. It may even be the only response Varoufakis receives to his proposed renegotiations.





We've watched you playing tricks, and every kind of game
At spending and never paying, you men have made your name,
But now your country calls you to play your part some more,
And no matter what befalls you, we shall love you all the more,
So go and launch the Drachma, as your fathers did before.

[Refrain]
Oh! we don't want to lose you but we think you ought to go
For the Euro nations need it, now you’ve voted 'No'
We shall want you and miss you but with all our might and main
We shall cheer you, thank you, bless you when you come back again.
[Chorus]
Oh! we don't want to lose you but we think you ought to go
For we've all lost our patience, now you’ve voted 'No' 
We shall want you and miss you but with all our might and main
We shall cheer you, thank you, bless you when you come back again.

We want you from all quarters, well the South, but not the North
From whom you want more billions, they say you can go forth
You may have thought we failed you when you were in distress,
But your answer to a Union, was clearly not a "Yes"
And so your name, in years to come, we’ll blame for all this mess.

[Refrain]
Oh! we don't want to lose you but we think you ought to go
For the Euro nations need it, now you’ve voted 'No' 
We shall want you and miss you but with all our might and main
We shall cheer you, thank you, bless you when you come back again.
[Chorus]
Oh! we don't want to lose you but we think you ought to go
For we've all lost our patience, now you’ve voted 'No' 
We shall want you and miss you but with all our might and main
We shall cheer you, thank you, bless you when you come back again.

It's easy for the Germans to stay at home and shout,
But remember there's a duty, so you will be kicked out.
The odds against you staying are now set at four to one
We cannot rest until you see, your duty's to be gone
And the EU commission's duty, is to see that duty done!

[Refrain]
Oh! we don't want to lose you but we think you ought to go
For the Euro nations need it, now you’ve voted 'No' 
We shall want you and miss you but with all our might and main
We shall cheer you, thank you, bless you when you come back again.
[Chorus]
Oh! we don't want to lose you but we think you ought to go
For we've all lost our patience, now you’ve voted 'No' 
We shall want you and miss you but with all our might and main
We shall cheer you, thank you, bless you when you come back again.

Homemade Economics

PPI in China is currently running at 5.8% which means with growth running at 7.1% the real rate of growth when discounted by nominal USD funding costs is pretty close to 4%. Which is all well and good in a period of cyclical normality but in the current phase of endogenous credit bipolarity makes the outlook extremely vulnerable. 

In fact looking back over the last ten periods we can see just how divergent it has become, as this chart clearly shows

Exhibit 1

Chinese growth during periods of endogenous credit bipolarity

But China isn't the only problem. With growth slackening in developed nations, despite strong housing data (Bulgaria's housing index was up 84% last year) and demographics pointing towards a bulge bracket of 27yr olds taking up cycling, the Johnson rule would suggest policy makers are in no hurry to re-adjust the base level measurements we have experienced since 2008. 

 Exhibit 2. 

Base level adjustment discounted by Johnson rule

Austrians would naturally argue that such a case is experiencing unstable equilibrium with monetary inputs dragging E to the left and P to the right leaving a widening gulf of O. But no evidence of such can be found in recent sample sets. Even when adjusted for circular deformity, we can clearly see that O is regular and remains unwidened. 

Exhibit 3 

Regular and unwidened O

Which brings us back to exemplary dysphasia in unemployment. Whilst unemployment amongst 12 year olds remains stubbornly high in developed nations, partly due to domestic education policies and partly though wheat prices, it can be argued that a 6.8% carry on invoice defaults and credit tightening across the whole parabola induces slowdowns in raw material consumption where Yx = Dx /&.T$ + (JP@. (9)). Which is not at all intuitive, 

Exhibit 4 

Not at all intuitive 

If we are to see any form of resolution to Europe's distagflationary epaulettes, they will have to come from the supply side. As Mikany and Jelb have shown (Distillation of Postulates N.Mikany and B.Jelb 2001) upswing delays in offsetting inventory cannot be expected to serve as the moment around which growth will pivot. 

Exhibit 5 

Growth not pivoting 

In conclusion, the mesoform displasticine payoff between domestic policy adjustment and bank liquidity is unlikely to change in the near future. It does, however, imply that shocks to demand in overweighted bilateral economies should be expected. Unfortunately, through experience and the application of Newtonian fluid mechanics we see little that can be done to circumvent such exogenous shocks. 

Exhibit 6 

Newtonian fluid mechanics failing to prevent exogenous shocks

-----------

This post is, of course, all completely made up bullsht, but probably not that much more so than half the stuff we have to read from some esoteric sources and probably just as helpful. More fun to write though. As it's holiday time for our American cousins Happy Holiday and may your Greek vote go with you!

Famous Greek quotes from history.

Observations- 

 A Greek deadline is like the speed of light. The closer you get to the harder it is to reach.

You know how children's immune systems are screwed up these days because the don’t play in the dirt anymore? Well the same goes for 25 yr old French quants.

Does the GBE/GPE trade in the fix?
GBE = Greek Bank Euros . GPE = Greek Pocket Euros.

You can be sure of two things you in life - Death and journalist looking for a crying Greek person, preferably by an ATM.

Using option terminology we can say-
EU ATM is ATM
Greek ATM is OTM

Tsipras is an oximoron

Famous Greek quotes from history - 

Harold Wilsonos

"The Euro in your pocket is worth the same today as it was yesterday. Shame I can’t say the same about the one in your bank account."

Tsipras Caesar 

Friends, Germans, Countrymen. Lend me your Euros.
Et Tu Coelho

Neville Chamberfakis 

"I have in my hand a piece of paper signed by the Chancellor of Germany ….Errr hang on where did I put it?

Muhamed Alios 

Float a new currency, Stung by ECB.

Martin Luther Kyklades 

I have a dream that one day this nation will rise up, read the 90 pages of complex proposals set before us by our EU creditors and have the economic understanding and intellectual ability to not only fully comprehend them but to cast judgement on them in full consideration of the fact that we might royally screw this up

Bill Clintofakis -

1) - Let me say this again, I did not have financial agreements with that woman
2) - Indeed I did have an agreement with Frau Merkel that was not appropriate, in fact it was wrong. It constituted a critical lapse in judgement.

Hamletsipras

Euro, or not Euro: that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them? To die: to sleep;

Alas poor Yanis, I knew him well.

Henry Thefifthikis

Once more unto Brussels, dear friends, once more;
To close the wall up of our Euro debt.
In peace there’s nothing so becomes a man
As modest stillness and humility,
....... But that really isn’t me.

Winston Churchillopolous

Never in the field of European debt has so much been owed by so few to so many

Demosthenes 342 B.C.; Athens, Greece
Tsipras 2015 A.D.; Athens, Greece (he doesn't even need to change this one)

It is this fate, I solemnly assure you, that I dread for you, when the time comes that you make your reckoning, and realize that there is no longer anything that can be done. May you never find yourselves, men of Athens, in such a position!

Playing it by the minute.

These are the sorts of markets I usually enjoy. I am pretty useless at the micromaths of investment, but that's ok, their are thousands of micromath geeks out there in investment land running every ratio possible to tell us what happened in the past and pretending it is the future.

The science of finance maths geekdom can be considered similar that of the astro-physicist. The astro-physicist is pushing back further in time to figure out what happened before the big bang, his time constraint being the big bang itself towards which he is ever slicing finer segments of time, but as with Zeno's paradox, never being able to get to the big bang itself. The financial maths geek/gonk is working it in reverse, analysing all data back to the beginning of time in order to model the future but can never ever quite get to working out the present because all his inputs are from the past, however close to the present that past is. In this respect all models are doomed to fail unless someone invents a way of harvesting data from the future (at which point you won't need to model it because you can see into the future anyway.. errrr).

But my point is that when we have markets like this, the game changes and using a highly polished rear-view mirror and a ridiculously accurate speedometer does not compensate for having the windscreen covered and you crash on a sharp bend. What you need instead is an overview of everything and much like a general in battle, those standing on the highest ground, with the most powerful telescope and greatest experience will win the day. Before I get too bogged down in analogy all I am trying to say is that  quants hate these markets, behaviourists love them.

Price action today. As you probably detected from the last post I cut all risk shorts, the ones that I could in the early hours and the others when Europe opened. So far so good and it panned out as expected, the media queuing at every ATM (if the Greek's imposed a levy on all foreign journos filing at ATM's it would go a long way to defying the crisis), and mainstream hooting and hollering about the financial worlds imminent collapse. And we bounced.

But then something happened that worried me, all was going swimmingly until we ran into RK's rule. RK's rule was developed by a good friend and it applies to the price action between 3.00pm London ( 10.00am NY) and 3.30pm. It basically says that the way prices move during that period will set the trend for another certain time period. There are of course nuances and caveats that have to be applied but me telling you all of those would be reducing it from  RK's rule to an AF's (Any F'ker's) rule and that wouldn't be fair.

At 3pm Ldn the market rolled by which time confident dip buyers were getting more confident  and my space of media fading was too crowded for comfort. So basically I got back short again in equities. As the US markets rolled some of the biggest moves were in sectors that could not be easily linked to Greece woes. The large fall in the Nasdaq was indicating more of a general unwind of leverage trades which is the healthiest sign of contagion panic there is. When these sorts of moves get going they find it hard to respond to minor headlines from the original stimulant.

The US find it very hard to do nuance, especially when it comes to Europe, and it now looks as though the "Europe is finished" school of thought is back in fashion. A dangerous belief however tempting. Schadenfruede should only be enjoyed after the event and should never be anticipated, as its anticipation ruins the chance of its outcome.  The 'Europe is finished' may have been the backbone of the US moves but the US became a generalised risk run and that is of concern

Coming into European time zone again US indices have put in a small bounce and appear more comfortable. They have effectively lifted a cheek, broken wind and settled back down again feeling more comfortable and less bloated. But Europe are now looking at the moves in the US and putting a new catalogue of factors into their reasoning. "US off? Tech off so much? Hang on the US is beginning to lead" And this is now the worry. Greece may have catalysed all of this but we now have to watch everything as the great leverage trade of the last 3 years 'could' unravel. It is only a small could at the moment but we must watch every crack in the building for further movement. If the US markets don't respond to nuances of good news from Europe as fast as they should then this is a good sign of a bigger shake down. But for now, everyone has had their chance to react, and though as I write european stocks are playing US catch up, Bunds are off and US is holding onto its overnight small gains. Turnaround Tuesday or at least 'Stabilising Tuesday' is at the moment and  I stress ' at the moment' where I place my money.

But I am currently watching every asset I can and their interactions with each other for signs of real contagion rather than just assumed contagion and am playing longs and shorts like a day trader. And why not? 2% daily swings in a market that pays yields of 2% per annum are hardly to be ignored.


And finally - I give you the ultimate Greece remover

Do not open until Eur/Usd is at 1,1150, FTSE at 6650 or Dax at 11200

Dearest friends, 

            I will be long gone by the time you read this message. It is just past midnight and, as I lie here awake, unable to sleep through the angst of a life of turmoil, I stare out upon the screens of doom and lament. I despair of news that the world is about to suffer an apocalypse as the angels of hell rain down upon the financial markets. A doom foretold by the angels of economic death, in the names of Munchau and Evans-Pritchard, as foretold not minutes ago by telegraph. I wrack with pain at the idiocy of those once again looking for basis swaps to indicate the imminent collapse of all things European and I shrivel in a fetid corner away from the horrors of those crying the end is nigh. So here dear friends, I say goodbye, for I have taken it upon myself to sever my shorts and be done with this life as a bear.

Right, that’s enough theatre.

A few points, though it's now only 2am London time.

Eur/usd has not cratered. It is in the midst of the range it has been in for the last 4 months.
Today there is more chance that the Euro is a little more German and a lot less Greek.


EUR/USD daily candles as at 23.00 BST Sunday night

The Dax is currently trading only a smidgen below where it was a week ago last friday before last Monday's hope rally. It is still currently higher than the levels it was at 18th/21st June.


Cash Dax (off the futures) daily candles  at 00.30 BST Monday

Interestingly it's the FTSE that has broken recent lows instead, perhaps as GBP roars on the 'safe haven' trade. Sorry, I wont believe that unless I see London house prices soaring on European 'run away' demand again.


No matter how libertarianly anti EU some of the rising parties in other periphery countries are, the public hang drawing and quartering of Greece (lets not debate whose fault but agree that life in Greece is about to get tough for a bit) is going to be a bit of a wake up call to those wanting to go over the edge. Portugal may not approve of the beating their cousin is getting but I bet they are glad it isn't them. All of this boils down to me thinking there is less likelihood of further imminent EU departures  so you can forget all this sell the crap out of periphery bonds stuff after this first kneejerk, unless of course you are selling the crap out of them for more solid pre-existing reasons such as inflation, growth, market positioning etc..

You may well be asking how I can swing on opinion of the markets only just two days ago having suggested violence on the streets of Athens is only days away. I stand by my predictions for Greece but expectations have swung dramatically though bad to apocalyptic. Three days ago no one seemed to think it possible, but now that outcomes have come out as they have we have the reverse of last Monday.

Yes folks, it was exactly one week ago that the markets were rallying hard as some Frenchmen were saying all would be fine. Sounds pretty silly to have even believed them now doesn't it? But we are just as likely to have an overshoot the other way with regards to  expectations vs outcome.

All global markets have fallen so far. The Nikkei is off not far shy of 2.5% and SPX is off 1.5% right now, but you don't have to go far back in any chart to see that these are not game changing moves. Oil is down a bit, hardly reflecting an imminent collapse in demand caused by a global slowdown caused by Greece.

The biggest problem out there for Monday is panic with the media is throwing fuel on the fire, and dancing around singing Hallelujah.

Background factors to consider:-

Equity manager have been running record levels of downside protection.
Firedoors and bulkheads are in place in Europe with regards contagion.
Liquidity for all non Greek areas of EU is just fine. Compare with Cyprus blow up.
Greece is less of a fear and now more of a reality.

In summary:-

Yes it's happened
No it won't destroy the Euro.. this time around
Yes, it will give the EU a kick up the arse and hopefully push them towards reforms.
No, peripheries are not going to blow up in the next 6 months
Yes, Americans don't get European greyness and will assume the worst tomorrow.
No, some Americans don't know where Greece is.
Yes, it is another classic example of what happens when borrowing someone else's currency (even if you are are led to believe it's yours too)
No,  all Euros are not equal - The Euro in your Greek bank account is worth less than the euro in your Greek pocket.

And finally, - the worst is now being assumed and the worse than worst expected. So yes, markets will bounce.

I am standing by to buy back my shorts and may well have done so by the time you read this post.

Oh, and let us spare a final thought for the poor portfolio managers and funds who had tidied up there books, got their weightings all correct and given performance guidance ready for today's half year end when, boom. Greece happened.  Rebalance that, if you can.

Night night.

Cries I can’t hear but I know are out there:-

Cries I can’t hear but I know are out there:-


Hellenic debt isn’t the same as Greek debt is it? It is? No way.. Shit

Ok, I want a complete breakdown of our Greek exposure. Huh? Why is it too late?

Ok, cut all credit lines to any company ending in ‘os’  no matter where in the world they are domiciled (from any bank credit director).

What the fk is going on in Greece? Where’s that intern Spyros, he’s Greek .. Oi Spyros.. WTF is going on?

The CDS will pay out won’t it? You bought the CDS FROM the Hellenic republic? It was cheap? You wha…'

Don’t worry sir, my model shows that the chances of Greece leaving the Euro are a 6 sigma event as it hasn't happened before, so we should be absolutely fine.

Sun cream, shades, swimmies, evening casuals, cash lots of cash and errrr .. food, bottled water, riot shield.

Darling, does this mean that we will have to use manchago instead of feta in the Ottolenghi salad?

Mwuahahahaahaha.. (in a German accent).

Does this mean that they are in or out of the European League? I’m sure we were playing them in the 3rd round.

So is my delayed Athens departure to Dubai on Norwegian Air covered under the EU air compensation agreement or not. (Ken V).

Duty free! We can do Duty free! Oi Doris, get me another 10 bottles of that green shit and 600 Mayfair smokes.

Olives, go long olives! Or is it short olives? Where are research when you need 'em?

Well when I arrived you were in the EU, what do you mean I now have to pay $2000 for a visa?

Hello, Kalamaki Marina? Errr, can I reflag? No? My yacht is where?

Darling, did you pack my red trousers? (clueless lawyer on the way to the Peligoni Club)

Tell them I’m dropping the bid for the 20yr Piraeus base contract from €200bio to €10bio (in a russian accent)

Danny, get me a 3 minute clip edited down. I need an emotional highs 'n' lows montage of Greece’s EU membership for the end of the 6pm news. Yes like the World Cup one. No you can’t use that.

FIND ME CRYING PEOPLE!!! (editor of BBC news)

Mate, I wouldn't mention that 15 yr cross currency-swap you did for the Greeks in 2001 on your CV.

Gas pipelines, hmmm. Forgot those. Good thing they aren’t going to go through Greece.... YOU WHAT?

So in FKD’s* that's still €3 for the small coffee (Any greek cafe owner)

What do you mean you can't switch the ELA off? The lever's stuck?

Boys, it's Christmas! (all financial lawyers)

Look, just read from the sheet down the phone like this "Mrs Kritikos? Our records show that you may be entitled to FKD* 56,000 compensation for being miss-sold entry into the EU,  or exit out of it"... There, got it?

You don’t know how to spell Dijsselbloem or Varoufakis. Where have you been?

And tell all London sales and trading I want them in by 4 am Monday. There is money to be made. I don’t give a fuck that Singapore is in, they aren’t going to rape our clients, that’s our job.

Call me when the Albanian Lek hits parity with the FKD*.

He says he can’t find the refugees, they appear to have gone home.

Get me EUR/FKD* calls!


*(Formally Known as Drachma)

And so it came to pass. Greece part n

And so it came to pass..

that Tsipras and Varoufakis returned to Greece having been unable achieve their objective of debt forgiveness and were faced by political unrest from all sides.

I have just found  this in our unsent card drawer, it’s of a 1968 ‘Punch’ cartoon. 

This is not a huge surprise, having expressed massive disbelief at the markets' behaviour last Monday, it is reassuring to know I wasn't going mad. Before we go on, it is worth noting again who the main protagonists of immediate negotiated success were. Remember? Hollande, Sapin, Moscovici (who is still holding out hope) and anyone French. I suggested back then that they have their own self interest at heart as their own finances aren’t in the greatest of shapes. Their socialist government has already been through what Syriza is going through, but to a lesser extent - being forced to U-turn on extreme socialist ideals (taxes) and suffering from an overweight public sector and excessively generous public pensions deals. France has the power to pull out of the nose dive but Greece hasn’t (the French must be crossing their hearts). Yet despite the excuse of sympathies, this is not a great piece of PR for the French, leaving them looking very out of touch with what is going on.

But back to the Greek referendum. The path that Tsipras has taken in announcing a referendum on July 5th is logical but devisive. If you are damned if you do and damned if you don’t then pass that decision on to someone else and avoid the problem. The consequences of this referendum may well lead to Greece leaving or staying in the EU/Euro but that outcome is only implied and the Greek government will be very careful not to have any such specific wording appear in the question. The ‘let the people decide’ option implies gloriously fair leadership but is more a smokescreen to cover a fast retreat from responsibility. This option lets the masses decide and is wrought with danger

- The deadline for IMF payments is 30th June, well before any referendum outcome. If the EU/IMF allow a stay of execution until the results are in then they are laying down a dangerous precedent. 'You don’t have to replay your debts on time if you are having a collective think about it’, which could lead to industrial levels of deadline avoiding referenda. My cynicism already has me imagining that, as the referendum would not be complete until all votes are counted, delays from some of the far-off islands could be magically extended ad infinitum.

- The EU proposal is composed of highly technical detail that, with all due respect, will lead to the populace being asked to vote on something that they just don’t understand. Much as if I was asked whether to cut the red or blue wire to defuse an atom bomb. This could be seen as the greatest financial misselling crime ever as Tsipras is asking the whole population to make a life changing financial decision fully knowing that they are not in a position to understand what they are committing to. "Our record show you are owed FKD 56,000 due to the Grexit misselling. TXT 2015 to claim".

- The EU may, indeed some say they have, withdrawn the proposal making it impossible for the Greeks to know what it is they are actually voting on. If the Germans wanted to get really nasty they could even hold their own referendum on whether they will even provide a deal for the Greeks to base their referendum on. It would be even more interesting if the whole of Europe could vote on the content of the EU proposal as plenty would vote to see German creditors take the pain.

But the biggest problem is social unrest. When a government divests itself of responsibility, passing it back to the populace, the populace no longer has a well armed central pillar of anonymous authority against which to protest. Instead, with the government washing its hand of the problem, the rival sides take to the streets and take to each other. We have seen riots in Athens before, but these have always been directed with solidarity towards the government. When opposing marches meet and realise that they are opposing each other, rather than the government, it gets very nasty. To an extent we saw this with the Scottish independence referendum, where the campaign became very personal, pulling on nationalistic patriotism, morals, personal bullying and turned neighbour against neighbour.
In many ways the election of Syriza was very similar to that of the rise of the SNP. They represent a rejection of overseas lordship rather than reflecting the differences of local political feelings.

And just as with UK politics, beware of any opinion polls. As with the UK election people will be more willing to project moralistic and left wing biases but, when push comes to shove, will vote for their personal best wellbeing (that is even before we discount now evidenced herding behaviour of polsters). It is being publicised that the UK’s Ladbrokes betting company is pricing deal rejection at 1/3 on, but bear in mind that this price is being set by UK betters and, like CDS, does not represent actual probability of outcome. Just the implied. Also, as with CDS, the price contains a hedging bet component.

Having raised the subject of betting companies, they are one of the few places other than banks where you can hold your money on account. I had already supposed that this weekend Greek retail sales will  go through the roof as Greeks max out their credit cards as they are not able to withdraw their cash from banks, but a cleaner trade would be to set up and load up online betting accounts using credit cards this weekend. Online poker sites, expect your deposits to rocket.

Cash points are being emptied and all focus is now on the ELA which is the lifeline keeping the Greek banking system going. To the Greeks it is a gushing pipe of Euros that they are withdrawing as fast as possible in cash, yet to the Europeans it is a severed artery that needs to be staunched. What happens to the ELA on Monday is key as we are heading down the Argentina route fast. As with Argentina, the Greek government is soon likely to have to issue IOU’s. A form of debt that is enforced rather than bought. These IOUs effectively become a shadow currency reflecting where any new currency would trade. Though priced in Euros they would trade at a discount to reflect credit and political risk and that discount would match the discount that any new currency would be subject to as the determining factors are the same. These would easily transition to any new currency of the ‘Formally Known as Drachma’, the FKD.

Next week is going to be see a disorderly market open on Sunday night unless the EU/IMF back track (v unlikely) and it will not be long before opposing groups start to clash on the streets of Athens. Not something I want to see, but something I expect. After that? Get out your Argentina play book and sprinkle it with Russia dust.

---

Post script - Dijsselbloem has just spoken for the Eurogroup and his statement and Q+A can be heard here. It's good to listen to as you can pick up more of his exasperation than just through the text. The basic tone is 'We are done with this shit'. I do hope that the constant references to Tsipras as 'The Greek member' were meant as double entendre.

Cell culture and hive minds.

One of the greatest realisations I have had on leaving 'normal' life in the city is that life in a large financial institution is much like that of a bee. A bee starts life as a pupa in a cell, fed and nurtured to have only one function that is preordained by said nurturing. Whether it be as a drone, a worker or, by social selection, a queen. Such it is with the modern world of banking.

Once upon a time the banking hive celebrated the individual, the creative spark , the maverick that could accidentally cause positive change. In effect a rogue gene that was needed in the process of evolution to enable the further selective advantage of the organisation. But, correct me if I’m wrong, has the system we now see before us moved from one of natural evolution to a system of clonal genetic selection?

The mavericks and the geniuses that are the spark to spur advantageous evolution seem to be far between. As is the space they are allowed to develop in, if they are even allowed entry. Whereas the creative and IT spaces have nurtured creative spirit, the finance hive has narrowed the comb cell space of speciality to the point where evolution is only driven by top level planning. The populace of workers below are shackled in smaller and smaller pigeon holes of speciality that has restricted each participants view of the big world to that of a specialist cog in the machine. A machine that they are not expected to shape, form or evolve in, rather just provide function.

The quantification of financial function and the repression of individual thought through management planning, HR backward drawn matrices further compressed through a tightening framework of regulation has born a hive of lost souls, and more importantly lost intellect, in a ‘Matrix’ style farm of human intellectual energy.

I remark on this because I am growing constantly aware of genius that is being cast aside from the once great institutions because they just don’t fit the tight matrix structuring that a modern institution demands. If they are looking for an employee, the demand is for highly specialised individuals to fit  highly specialised slots leaving those with broader but less intense abilities outcast.

In effect two types of skills distribution-

The specialist with clear cut edges of ability and interaction

The broadmind with a central skill but a probability curve of connective tails (much like the probability cloud of an electron).

Employing pegs for holes is fine as long as you are sure that the pegboard you, as management, have created is perfect. But it is a rigid structure unable to change without top down master decisions.

Yet that isn’t how we have found that the most efficient form of information evolution or processing occurs. The development of artificial intelligence has shown that algorithmic behaviour, or interactions providing feedback, at the base  level mean that efficient evolution can occur naturally, in effect self healing or evolvoing, before the top level control (management) has to interact. But for that to work you need an overlap of information and processing ability provided by the tails of skill sets that a peg specialist lacks.

Which makes sense, for who is more equipped to effect necessary change than those at the level of understanding involved. Pull that back to looking at management versus employee and though management may think they have an overview of the ship, if the engineers in the engine room aren’t capable of communicating the engine is likely to seize unless the captain of the ship also wants to get his hands dirty understanding the finest mechanics of its operation.

The need for a broader set of skills within individuals is hardly ever measured by a human resources team who are briefed for a best fit, rarely taking into consideration the overlaps. Big banks have headed this way fast and it leaves them unable to adapt or evolve because they have restrained all the variables that provide constructive evolution. Without it they will die.

The regulatory pressures and influx of HR driven pre-concepts at financial institutions has meant that they are losing some of their greatest minds. Those that didn’t quite fit or could see further than the cell in which they lived and asked questions that challenged a management that didn’t quite understand the system they were running were dragged out like deformed pupae and discarded by the clonal work force. Or using the ship analogy, those that cried ‘iceberg' were swiftly removed from the crew.

This is happening in fund management too. Individual specialisation in investment techniques has left  funds understaffed with those who can see the whole picture. The performance of macro funds has now started to outstrip that of the main indices. No great surprise to your author who suggested  in January (here) that 2015 would see  macro and sector selection, once thought dead and buried, rise again this year at the expense of index trackers. But the fund industry has also not only not been training new macro thinkers, preferring quants, but has lost some real talent too.

So what has happened to the bank and fund creative talent? Interestingly the more I explore the territories of the 'once-financial', the more I stumble upon enclaves of genius, hunkered down in bunkers of self doubt, wondering if the apocalypse of financial change will ever see them prosper again. Sad but true, there is genius out there, but broken from the supportive framework that they grew upon, they are full of doubt and without structure around which to regrow. The coral polyps looking for a rock on which to grow after the reef shattering financial hurricane.

Which has me feeling that there is a synergy to be had. Pull them all together under a sheltering umbrella of a new structure. A collective that is a hive mind but built on individuality, but with some underlying key rules. 1. No w@nkers. 2. No pressure unless you want it. 3. To fit in with your own life style.  The ultimate work life to keep the brain alive and contributing, yet provide a lifestyle that doesn’t involve 7am to 7pm workdays. Well, not if you don’t want it. The Kelly’s Heroes* of finance.

This is just the time too. Banks are having to separate research from trading and God forbid a sales person expresses an opinion for chance of being sued for a catalogue of misdemeanours. Advisory may be considered a free service by the client side but if they don't pay for it and the sell side can't be rewarded for it through trade volume as per latest regulations then we are due a Mexican standoff.

 At which point Kelly's Heroes enter stage left.

*If you are too young to have seen that film, dig it out and watch it.