Admiring the landscape.

I’m back from two weeks of bliss on a boat. The holiday was disaster free and ranks as one of the best ever. Croatia is a dream and remarkably we found it cheaper than Greece. Yes I know that there are places in Greece offering normally priced coffee but my ‘Quayside Coffee PPP’ indicator saw Greece at €3 and Croatia at €1.50 this year. Boat stocking supermarket trips were also considerably cheaper, probably due to easy access to Croatian national hypermarket chains rather than village stores. Dining out was much more varied too, Croatia providing a wider selection than the predictable Greek offering of 20 identical quayside tavernas with identical menus. Where Croatia does gouge it’s pound of flesh over Greece is on mooring fees. Greece considers the sea and access to it a basic national right so town facilities are free. Croatia bill you handsomely for securing your boat to anything. But enough of tourist micro-economics.

I am pretty sure that the high US employment figures can be explained away by the number of people employed to comment on future Fed action. I feel like a philistine in expressing the view that I find it all a bit dull. It can be compared to watching a Shakespearean play where the cognoscenti exhibit their literary prowess by laughing just before the clever witticism occurs, instead I’ll just laugh after the event when I've had time for it to sink in and understand it.

China - Down, down, deeper on down




In basic terms this is why the world is terrified.

from http://www.visualcapitalist.com/china-consumes-mind-boggling-amounts-of-raw-materials-chart/

The site also states that "...the country has consumed more concrete in the last three years than the United States did in all of the 20th century". A fact I haven't checked but find jaw dropping.

'Nuff said on China. If you want clever insight read George Magnus - you can find him on Twitter @georgemagnus1

It would appear that the markets are now bracing for global recession with the BAML survey creating stories such as this 'Fund managers braced for global recession'  http://on.ft.com/1NuGgxr 
Which has me assuming that 'braced' means 'positioned'.

Sentiment measures on SPX are also flashing 'it's in the price' (H/T @NicTrades)

In which case we are back to the most basic market game of trading the expectation derivative of expectation of expectation.

But a couple of things have happened this week that make me go 'uhhhm'. The first is related to the anatomy of a crash. When things get nasty everything starts to correlate in a nasty way with regards to down moves. Pretty obvious really as the perceived cause of global disaster is watched by 'Macro Tourists' as the trigger for moves in all other markets. Though correlations are still high relative to long term averages , they are starting to fall.

When I went away every move in Chinese stocks was being shadowed by Developed Market stocks (in particular commodity stocks), yet over the last couple of days this relationship appears to be waning. China had a hefty dump on Monday yet DM markets appear to be shrugging it off. Indeed the techie sector is now even threatening to break upwards through some interesting levels, all the more interesting if you look at the Nasdaq super-low sentiment level in the table above.

Can I read this as a sign of short term punter ADHD? I could try and rationalise it by suggesting that if you were going to get short on the China story you would have done so by now, having had a few weeks to sell rallies and, of course. believing that this is 'the big one' you wouldn't be waiting for a massive rally to sell into. 

The volatility market is still making headlines with remarks being made as to the shape of the VIX curve and the VVIX vol of vol. There comes a point where trading the derivatives of derivatives starts to cause ripples in the deep space of price complexity that becomes detached from the actual here and now of the basic price. Much as using the Hubble telescope to study oscillations in binary star systems billions of light years away may give an insight into the weather next Monday and therefore to umbrella sales but it is more likely that umbrella prices will be more dependent on how cheaply China can make them. 

But the most important thing to remember and mistake not to make, is to recognise that implied volatility is not actual volatility. The VIX et al are measures of perceived future volatility derived from the prices people are willing to pay for options. Actual volatility can be very different. I have a feeling that though implieds are running hot at the moment they are about to be undermined by a fall in actual volatility. A further point is that historic volatility, which is what actual volatility was (not is), is not present actual volatility. 

Currently implied vols in major equity indices are trading lower than historics in the 3 months. (thanks to @BrokenBanker for the Bloomberg screenshots) 

But this doesn't mean that the implieds are too low. It just means that people don't think we will have a blow up similar to August's any time soon. Historic volatility, by it's nature, lags. It's effectively an historic moving average. If it is announced that a currency is to be pegged in a week's time the historic would not reflect the fact that volatility will be 0 until the historic period expired, whilst the implied would probably fall, but not to zero as players would be betting on the chance the peg didn't happen or would blowup, whereas the actual volatility would be 0. 

My general point is that using volatility as an indicator is a minefield unless you know exactly what you are looking at. Implied volatility is partly volatility but mostly a huge chunk of estimated probability. Just look at volatility pricing in the USD/Saudi Real which has a volatility of near zero. As with CDS, volatility is crude tool for financial journalists to twist stories of woe from. 

We all like to yell and scream at high intraday volatility but the best way to defuse the panic is to apply moving averages. Below is the SPX with 2(green) 5( grey) and 10(red) day moving averages applied.

I know I should be using fibonacci numbers as they are apparently magical but looking at the nice normal 10 day (2 week) we can defuse the whole of September's moves back to 'remarkably dull'. I am predicting that falling actual volatility will undermine positions in implied volatility and with it a reverse pressure on the risk parity funds that have been so cited for vol following trades, to actually start buying back.

I am still not playing the 'it's all going to melt by the end of the week' theme even with the Fed in play.

Oil - There has been a renewed call fro analysts that $20 oil is on the way again with Goldman joining the fray. The last time this happened we saw the base (Shakespear's oil bear witch project). We also have another signal. The tabloids are calling for £1/litre petrol in the UK yet the oil chart doesn't exactly say 'dump' to me.

The majority of assumptions are based on the continuation of trends and that is why so many are wrong.

One last thing - There is a very good WSJ series on Tom Hayes and his case the third instalment of 5 being here - http://graphics.wsj.com/libor-unraveling-tom-hayes/3.  the march of the regulator continues and I continue to suggest that if the transparency on pricing demanded of financial institutions were applied to the rest of the retail sector then UK High Streets would, far from being rejuvenated, have to be refitted as jails.

*For financial regulatory news and updates on current cases I recommend following @NewLeafAdvisory on Twitter.

Summer holiday

For the next couple of weeks I’ll be away trying to spend a relaxing time with my family sailing in Croatia. I’ll be acting the part of Captain Bligh as I run a tight ship and don’t expect any mutiny. To be honest the kids, though they pretend that all they are willing to do is sunbath and drink the ships stock of rum, are pretty reliable when it comes to handling the boat, so it should be a lot of fun. Going away with two other sets of close family friends, making up our own mini-flotilla, guarantees camaraderie and fun for all generations. 

Although it could go wrong, I'm hoping it turns out better than it did four years ago. If you want to read just how badly that went, read this - "What I did on my holiday" .

Here comes the stock boom!

Well, someone has to counter the sea of doom.

- Oil is up over 4%  6% wow, now 8% as I write. As stated at the beginning of the week, energy, commodities and all of the other bombed out components of recent moves need to reverse to confirm that this isn’t just a flash-in-the-pan equity bounce. This oil rally is the sign. Indeed oil  is even looking has broken its death slide trend that started in July.

- My TDI signal has just triggered. Yesterday my taxi driver said it was due to China slowdown. I wasn’t sure what was due to China as I wasn’t listening to that bit, only being triggered into awareness by the ‘due to China slowdown’ bit. Which was followed by a comment on oil prices. the Taxi Driver Indicator is a time honoured indicator of mine which has wonderfully predictive turn calling abilities and is used to confirm the 'Gone Tabloid' function, which in itself follows on from the "Armchair General Indicator' which the BBC's economic journalist Robert Peston triggered on Monday.

- Liquidity. My views on why illiquidity driven moves are as much an opportunity as trouble have been previously published here.

 -VaR. If everything told you that the bottle of whisky I was offering you was genuine and you knew that the only reason I was selling it to you for 10p rather than £18 was because I couldn’t fit it in my flight luggage due to weight restrictions, would you refuse it because the price had just moved 99% lower so was very likely to move another 99% against you? - Because that is exactly what using value at risk (VaR) models results in. Just when you want to buy value, your volatility driven model says you can only buy a tiny amount.

As a quick aside I was pondering setting up a fund with a reverse VaR function and seeing how it got on. Of course all the fund consultants and allocators would have pink kittens at the very thought of allocating to such a fund, but I have the killer reason for them to do so - diversification. Diversification has kept many an appalling performing fund alive and I bet there aren't any funds out there offering diversification of risk in risk. (Make cheques payable to....)

Data - The data coming out from western economies is pretty strong. Though the market is anticipating a massive slowdown caused by China it isn't here yet and if it is anything like predicting the Fed, any interpretation of the future will be made irrelevant by new information emerging before the event arrives.

- Equity indices are through their original dead cat bounce highs. But expectations that this is just a bounce dominate. Expectations of SPX hitting 2050 again in the next 2 weeks appear minimal (update, well they might be now).  The shake down we have just seen never had all the ingredients needed for a full scale collapse. The recovery in oil and commodities is solid and new ultra-doom calls based on China will most likely, as with Greece, need to be put back on the shelf ready to be brought down as bear food to justify any subsequent falls. China and Greece may be chronic but they are not acute.

Where are we? I don’t think the anatomy of this crash is truly crash like. Granted, we have China and commodity stories, but the part of the equation that doesn’t fit for me is the mood. Post financial crisis  the mood has been one of perpetual doom with an expectation of each subsequent crisis being observed as ‘the big one’. Yet they never are. The last few years' stock rally has been the most fought rally I have ever observed. I still find it hard to believe that we are due a really big correction until we have had the exuberance phase where exuberance has leverage in tow. If something is believed to be such a sure fire bet then it is worth mortgaging the kids for.

Yes, various sectors have seen prices pushed to levels that are hard to justify using normal metrics, but they have not been employing enormous leverage. The rally over the last few years hasn’t so much been so much one of exuberance but more of one of reluctance driven by a desperation for yield.

Here's a map which represents the classic phases of an asset price.

We can ooh and aah at it and instantly suggest that it represents the Chinese stock market pretty well

But where the Chinese and Western stock markets differ is that the Chinese market went through the mania phase with leverage being prolifically employed by the general population and many a Chinese taxi driver piling in. 

Western markets have not enjoyed the mania phase and general public leverage into the stock market is not being deployed. I have had it rightly suggested to me that the 2007/8 crash didn't see a stock mania before crashing, but it did see massive leverage unwound from society and the destruction of money in circulation. All crashes involve the unwind of leverage but there is little evidence of leverage in the stock market and I would imagine there is dramatically less after the actions of this week. 

Instead I am suggesting that we are only at the bear trap in the 'awareness' phase of the map. We have the mania, leverage and completely stupid stock boom ahead of us.

I know that this is a pretty punchy call but the more derision it receives the more evidence I have that the market is not thinking it, let alone positioned for it. 

Liquidity needs the return of the heroes.

The China meme has sucked in macro tourists and armchair generals and we know we have peak armchair generalness when Field Marshall Robert Peston BBC TWT(bar) takes to the field telling us how the world's biggest calamity has emerged over the last 3 weeks. 'Tail end Charlie' research units (those who are last to notice a change that they have to follow and are more concerned with following herding biases than being first with an idea) are now calling Chinese recession where four weeks ago everything was fine. Not saying there won't be, but the flip of opinion over the course of three weeks with respect to long term forecasts, that should be influenced by slow changing indicators, is laughable. There has been a polarisation of opinion with regards to China (the root cause of all this).

Some look for resolution of the fight between the 'buy the dippers'  and the 'doom 'n' gloomers through watching the stock volatility index (VIX) but I am watching all the usual culprits and oil especially. To get a really good 'muppet bottom' the whole lot should go up again, commodities, equities, HY, the lot. They haven't yet and so I'll leave fine tuning VIX micro trigger levels to the quant gurus and take a higher top down view. If this is make or break we can afford to lose the odd 3% of move for the sake of information resolution rather than trying to be point picking heroes.

I have some very clever friends who are telling me this is the start of a new economic phase and that China is having its own 1929. Not just those predictable overlay 'these look similar if I change the scales' charts, but in society's overall investment and development phase. I have sympathies with this but the problem, as ever, with China is that it is so hard to work out what is really going on there. Which makes me laugh all the more as we are getting some exceedingly detailed prognostications over not only China's outcome but the 3rd derivatives of it in individual Western stocks.

Should I be fading consensus in a market where we can't be that sure what is really going on as I also cannot know what is going on? Well yes. Probably more surely than in a market where I know it is easy to see what is going on and it is only me who doesn't know what that 'going on' is. If the majority of people bet that the next lottery draw will be 17 36 02 28 13 04 it doesn't change the odds of it coming up and I will happily bet against their guess being the result.

Price is rubbish, volatility is killing VaR models and the reduction in risk and willingness to establish positions, when the variance of perceived value to priced value can be so huge, means that liquidity vanishes. The 50 points SPX fall in the last hour of trading was a good example. What was that due to? News? Not that I saw. Some change in the economic outlook of everything? Don't bother asking an economist why the value of everything has fallen 10% versus fiat cash (now there's the irony) in the last couple of weeks as you will know that everything that follows will be rubbish.

These markets aren't for economists as they are too fast moving.  The best economists can do is to take the prices that you yourselves are creating via market actions and input them as fast as they can into their own models to predict new prices. Which is pretty irrelevant as the input prices will have changed by the time that they have done so and you will have stopped listening to them. Economists, like trading models, do fine as long as there aren't any sharp turns in the road to upset the predictive powers of their rear view mirrors. These markets are for psychologists. The brave and the bold will turn out the winners. These are the markets where realising true value and taking the position with little heed to traditional VaR measures will lead to gains and also to more stable markets.

There has been a lot of complaint from the buy side that banks are no longer there to provide the liquidity the markets need, the banks having reduced their proprietary books. But lack of liquidity being due to books having been reduced is only part of the reason. A bank trading book does not provide you with liquidity unless it is willing to take on your trade and it will only do that if it doesn't price the way you do, otherwise whenever you will be wanting to sell so will it.

So I postulate that the real missing ingredient here is diversity in trading and risk management style across the whole industry - banks and fund managers alike. With a standardisation of risk and trading models everyone will tend to want to do the same thing at the same time. What we actually need,  to add liquidity and normality to the markets, is a return of the old fashioned trading god. The superhero who would stand in when a price reached  'stupid' levels and pick it up with both hands rather than selling more because the money management model is telling him to reduce exposure, even if it is at stupid levels. Investment banks had their gods, Morgan Stanley and Goldman Sachs rates desks of the 90's had characters of whom films are yet to be made because they were too savvy to have themselves publicised. But these days the model is king and when things go doolally there is no sensible hand to steady things. The only hand expected being that of the Central bank. Oh pity the nannied generation.

Yesterday, 'long' was such an easy game to play.

With apologies to John Lennon's  'Yesterday'
----

Yesterday all my troubles seemed so far away.
Stocks looked as though they were here to stay.
Oh, I believed it yesterday.

Suddenly, I can’t sell, there's no liquidity
There's no bid left in the S+P
Oh, hell, we need some new QE.

Why it had to blow, to new low, on my display
This damn model's wrong, now I'm long from yesterday.

Yesterday, 'long' was such an easy game to play.
Thought it was just some gamma decay.
Oh, I believed the bounce today.

Why it fell so low, I don't know, I’m in dismay
I marked risk so wrong, now I'm long from yesterday.

Yesterday long was such an easy game to play.
Now I need a place to hide away
Before they call the FCA


-----

Still holding tight to that long.

The only thing I can report of joy was the meal that I took the family out for this evening as way of taking retribution against the markets. It has been a while since I last mentioned dining establishments, the last one being to slate Aqua Nueva in London, but it is time I redressed the balance. 

I have just enjoyed the best meal I have had for years and years. To be honest I wasn't expecting it, even though the establishment does have a Michelin star, as I thought there was only so much you could do as a fish restaurant. Boy was I wrong. Go to 'Angler', near Moorgate in London, for their tasting menu. I was blown away. I'd like to say tell them 'Polemic' sent you, but they wouldn't have a clue who that is, but you could try.

Price is news and all news leads to China.

Price is news. And with it is the retrofitting of all news to the price. Has anyone found any news that doesn't base itself on price? What is the news other than price over the last week? Chinese PMI Down, US retail sales disappoint. Is that really worth $5trillion of global wealth wipe-outs? Note here that once again the S.I. unit for stockmarket falls is $s of market cap lost, whereas gains are mere points or at best %s up, if commented on at all.

It would be a fascinating experiment to be able to deprive analysts of past prices (using a 'Men in Black' memory erase flashbulb device perhaps) and see how they get on. Hard enough with stocks, but nigh impossible in FX, Gold or oil where the theory of infinite equilibriums appears to hold true.

If I were to lay the comatose market patient on the table for diagnosis or confirmation of death, I would see a body riddled with price gun shot wounds but I would be looking for the real cause of the problem. That tiny pierce mark between the toes that could signal poisoned injection, the cherry pink in the cheeks pointing to carbon monoxide poisoning or the high radiation count of polonium 210.

Because though the cause of the falls is apparently blindingly obvious, I am afraid that this market doctor doesn’t buy it. Well not all of it. Yes, the riddling gun shots from the assembled uzis of the market drive buy shooting are not to be ignored as a contributing factor, but those are a consequence of the cause not the cause of another cause.

A year ago I posted a master plan of how this could all pan out  painting a picture of one last hyperbolic spike in leveraged risk with equities going ‘taxi driver’ long. The end game being one more huge collapse in everything that will be the test of the CB mettle and leave them resorting to real money printing rather than this QE smoke and mirrors type. Or ‘Corbynomics’ as we will now call it, named after a potential UK opposition party leader.

This morning I have been deluged with evidence as to why this market collapse is the big one. It is different, the world has changed and the expected collapse is here at last. But the reasons being offered are old wounds and depend on who you ask, as whatever reason that person ever had for being bearish is now encapsulated in a ‘See? I told you the markets would fall because of x’. Yet nothing has actually changed over the past couple of weeks to justify most of those reasons. The reasons have been there for the last 3 years so don’t come running to me now saying told you so for explaining the last 3 weeks price falls.

Yes I think we know where I am going. All clues to the current diagnosis point to asphyxiation and asphyxiation demands that airways are cleared. And there,wedged down the right bronchus, is a lump of Char Siu. No matter what your tin foil beanie reason for the current market collapse it all actually rests on a market belief that the Chinese State has lost control of its economy and that economy is about to collapse and take the rest of the restive world with it.

But the anatomy of the markets is really not weak enough to see this choking kill it.
- The banks are in a better shape than they were.
- US rates effects on EM debt should have been unwound from a month ago as Expectations of a September rate rise fade
- The call that equities have run up from 2009 lows by history breaking lengths of time ignores that that measure is being made from history breaking lows. Just take your base back to 2007 and stock markets are not at all overpriced. 8 years of no growth in the FTSE value is almost historically low.

Most importantly, the market has not been through a hyperbolic euphoria. A 'taxi driver high', where everyone is long equities and risk. This chart of macro and CTA exposure to US equities as we go into a fall is not conducive to it being a major event. They were short into it. Markets need to be long to be properly wrong and they weren't.

I have also had debates with colleagues and friends into the psychology of today's traders and risk takers. Their argument is that the current generation have been brought up in a world where prices only go up and so are geared that way. I disagree. I still feel that the current generation have been programmed by disasters and are always over-positioned for fat tail events. They all want to be the next Taleb. There may be stability in the crowd but there is no glory. I drag Twitter and social media in general to the witness box. Want to make me a price on the ratio of 'buy it, everything is good' to "sell it, it will all go wrong' posts? I don't know for sure but I can have a good guess.

There is chronic disease out there but chronic diseases are not swift killers and this market doctor is pronouncing that after a Heimlich manoeuvre to expel the Chinese concern the rest of the markets will recover.

This is a misdiagnosis of the 'big one' and rumours of the market's death are exaggerated. But if you do think its the big one then you should be selling US treasuries as Asian reserves have to be unwound. If you don't think it's the big one then you ought to be selling US treasuries for a risk rebound.

Towel chucking - Commodity style.

Yesterday was a towel chucking day in commodity land. 

Oil did it again and I hold up my hand with regards to getting oil wrong as that held up hand is devoid of fingers. The kevlar gloves, donned last week when buying for a bounce, provided no protection from the falling knife of prices. 

Glencore shares melted yesterday too along with most other miners. 'Caught out by fall in Chinese demand" said the head of Glencore

He also goes on to blame the price collapse on hedge funds pushing prices to unreasonable levels. HOHOHO Kerbonk (Laughing my head off).  Glencore is more hedge fund than most other hedge funds. But as always profit is genius and losses are someone else fault. In the same way as you never hear a corporation explaining away surprise profits through lucky moves in FX, though the reverse argument is often used.

So how many corporations are going to be looking at their balance sheets for Kazakh Tenge exposure this morning and hoping to find a small nugget of exposure on to which to kitchen sink all their management filings, as the Kazakh Tenge devaled 20% overnight? This has caused many shops to close for the day as they convert the devaluation into pure inflation by repricing everything accordingly. Do you really want inflation? Ask a Kazakh how it feels.

Kaz Minerals shares quoted on FTSE up sizeably (even priced in GBP) on the belief that this deal will give commodity producers a shot in the arm.

Not so sure how long that will last as a devaluation is identical to giving your workers a 20% wage cut, and like a wage cut they either take it, or demand more pay. But you have to take your hat of to them that was one hell of a devaluation at making China's 'deval' look like a rounding error. With the vietnamese Dong 1% softer too after manipulation by its CB, perhaps the headlines should read 'Emerging Asia revalues the CNY"

But the market is now in FX peg hunting mode and it appears that the only qualification needed to be a potential peg break goldmine is the word 'peg'. Some of the pegs appear to be being attacked by angry lynch mobs rather than reasoned investors. Take the Saudi real for example. It encapsulates the fears of whats happening next door in Yemen, Iraq and Syria, it captures the falling oil price and it encapsulates 'Emerging market' ( as much because most people have never heard of its currency rather than it actually being an emerging country). Ambrose Evans Pritchard* catapulting it to the fore a week or so ago also helped. But Saudi hardly have any debt and have about $670bio of reserves which would see them through 4 yrs of 20% budget deficits even if they never borrowed.

But why worry about the detail when you can just scream 'this is 1997' and ignore the background reserve structures. Even the Hong Kong Peg was being raised as a suitable peg break candidate today.   Just do the reverse. If the Central banks had any sense they would be writing all the USD call options being bought against their currencies. Oh but they can't. No, but their Sovereign Wealth Funds may be able to. Even if they can't trade their own currency, they could come to an agreement and sell each others currency usd calls?

The Fed - Fed fed fed fed fed up with the amount of time wasted by humanity trying to guess what the Fed will do when actually the Fed are spending their time watching what you are doing to work out what they will do. I am still sticking with my March 2016 call which took 30 seconds to come up with two years ago and is still as valid then as it was now. Call it my $5 plastic cheapo Fed watch to everyone else's Patek Philippe Grande Taille Fed Chronograph. It still tells the same time and yet I have enough change to buy a boat and a car.

With the air thick with towels and me bleeding to death, I am wondering if I should also chuck my towel or just use it to staunch my blood loss. I am a stubborn fellow who really should know better but this is still august and I have to keep reminding myself that it is silly season.  The market does suffer ADHD and though China, Emerging Markets,  commodities and High Yield may look like the four horsemen of the apocalypse right now, only a month ago those Horsemen where Greece and Europe and they have effectively been turned into donkey rides. If attention can switch that rapidly before then it can happen again.

As I finish this post the markets have gone strangely quiet. Is that it? Are we done? Can we now get back to buying again? I hope so. 

And one last thing . To the market acronyms of RORO and MOMO I would like to add one for the UK weather.  SOSO - Summer On Sumer Off. This year has seen high frequency oscillations between Summer weather and November weather. Today is another November day. 

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

*Has someone hacked Ambrose Evan Pritchard ? He wrote this about Chona and rather than calling for the end of the world he suggests quite the opposite in that China will be just fine. Odd. Also odd that John Ficenec has taken over the uber-apocalyptic role. Perhaps AEP has seen the light, is repenting his sins and becoming a missionary. 

August blues and doomsday clocks.

There is something odd about Augusts. A holiday season for Europeans that sees EU policy directed to making sure that the Eurocrat beaches in the South of France remain unsullied by irritating Euro issues. Problems are swept under the August carpet to be readdressed in September. One look at seasonal volatility backs up this picture with Septembers being the back-to-school new term mayhem.

Personal feelings are similarly enshrined. That longing as one waits for the pre-booked summer holiday with the excitement of getting away from it all. But the return from holiday is bleak. The nights are already drawing in and the next holiday event in the diary is Christmas. With that thought returns a depression of grey cold despondency. Pushing back the family holiday to September just results in the summer being wished away in anticipation, only to arrive back to post equinox gloom.

But August is a strange month for markets. It's as though you can tell who is waiting for their holiday, looking for reasons to do nothing, and those that have returned eagerly revving up September's expected volatility, whipping up the crowd in anticipation, even if there are few new themes.  Price moves are substantiated with off-the-shelf pre-used excuses probably purchased on Ebay.

Talking of such, it looks as though the UK’s Daily Telegraph writer John Ficenec has not only returned from holiday but has been on-line buying some secondhand 'market concern' beauties. Like any expert Ebayer, he is repackaging them and selling them on as a set. And what a set! Who would have thought you can assemble, in your own laptop, some well known and well worn household market concerns and link them together to make a doomsday alarm-clock already set to ring in just one minute's time?

Aug 16 2015 Doomsday clock for global market crash strikes one minute to midnight as central banks lose control - John Ficenec
http://www.telegraph.co.uk/finance/11805523/Doomsday-clock-for-global-market-crash-strikes-one-minute-to-midnight-as-central-banks-lose-control.html

But this isn't the first doom call from the author. His clock has been a bit faulty over the last year, so take heed and check all the YouTube assembly instructions and reviews.

10th April 2014 10 warning signs of a stock market crash - John Ficenec http://www.telegraph.co.uk/finance/personalfinance/investing/10755780/10-warning-signs-of-a-stock-market-crash.html

19th Sept 2014 10 warning signs of global financial meltdown - John Ficenec http://www.telegraph.co.uk/finance/markets/questor/11109440/10-warning-signs-of-global-financial-meltdown.html

2nd Oct 2014 How market correction could become a crash -John Ficenec http://www.telegraph.co.uk/finance/markets/questor/11137343/Market-correction-could-become-a-crash.html

27th Oct 2014 Stock markets threatened by collapse in Chinese consumer demand - John Ficenec http://www.telegraph.co.uk/finance/markets/questor/11187002/Stock-markets-threatened-by-collapse-in-Chinese-consumer-demand.html

2nd Jan 2015 Ten warning signs of a market crash in 2015 - John Ficenec http://www.telegraph.co.uk/finance/economics/11322623/Ten-warning-signs-of-a-market-crash-in-2015.html


Is a stopped doomsday clock right twice an day? If so we should probably hope that Mr. Ficenec keeps writing to keep the clock ticking.


"Work is a necessity for man.
Man invented the alarm clock".
Pablo Picasso

"Doom is a necessity for man.

Man invented the doomsday clock". 

Polemic Paine

I am somewhat caught. I have full sympathy for the bear arguments I really do but the preponderance of such doom views expressed above, married to surveys showing ultra-bearishness towards equities both in positioning and sentiment by the professional sector whilst equity markets really haven't fallen has me reaching for the buy button. But I stall. It's August after all. 

China Apocalypse Now - Kilgore Quotes

China Apocalypse Now quotes from the infamous character, Lieutenant Colonel Kilgore of the PBOC played by Robert 'Deval'.

With thanks to  @5_min_macro @southernmacro  @georgemagnus1 ‏@Macronomics1 for their contributions as the theme that developed on twitter.

Kilgore: You can either surf the move, or you can fight it!

Willard: Are you crazy, Goddammit? Don't you think its a little risky to move the fix?
Kilgore: If I say its safe to move the fix, Captain, then its safe to move the fix! I mean, I'm not afraid to move the fix.  I'll fix it over the whole fucking place!

Kilgore: China don't suffer!

Kilgore: Smell that? You smell that?
Lance: What?
Kilgore: Carry, son. Nothing else in the world smells like that. I love the smell of burning carry in the morning.

Kilgore: What the hell do you know about FX? You're from the goddamned SNB!

Kilgore: [Explaining what the PBOC helicopters use during market assaults] We use FX fixes. It scares the shit out of the markets. My boys love it!

Kilgore: I will not hurt or harm you. Just give me back my growth, Lance. It was good growth... and I like it. You know how hard it is to find growth you like...

Kilgore: [after the PBOC spectacularly knocks out a heavy FX positioning] Outstanding, Red Team, outstanding! Get you a case of beer for that one.

Kilgore: Lieutenant, bomb that fix about 300 points back! Give me some room to breathe!

Further quotes from PBOC Colonel Kurtz Kurtosis

Kurtosis:- I watched  USD/CNH crawl along the edge of a straight razor. That's my dream; that's my nightmare.....

Kurtosis: "The horror... the horror..."

Kurtosis: "Are my methods unsound?"
Willard:"I don't see any method at all, sir."

China, a peg on which to hang your bear hat.

I don’t think I’ve ever seen a 1.8% FX move cause such global consternation.

But of course it isn’t the move itself that is causing the problem, but the implication that they can do it again with the predictable now becoming the unpredictable. It opens up the ruler and pencil cupboard to the extrapolatinists who are now free to draw future conclusions as to where this action can lead with little other than fresh air to stop them predicting the end of the financial world. Yet this also raises the spectre of 'availability heuristic' and ‘recency' behavioural biases associated with recent events, which can be encapsulated into overestimating the probability of a recent event reoccurring and underestimating the probability of distant past events reoccurring. Earthquakes and terrorist events are good examples. The vacuum of other financial news in an August market leaves the landscape clear for these biases to propagate.

The China devaluation is being employed as an excuse for every wild market move and accepted as such by a willing global audience - to the point that I wonder if those accused of Libor and FX fix fixing were to cite ‘China devaluation’ in their defence they would be instantly acquitted. I was thinking of rerunning the cartoons I did here depicting oil price falls taking the blame for everything, only substituting in 'China deval’.

China news is big but is it THAT big? Quite often markets are set for a move but just need a trigger, so we also have to add in to the equation the background situation into the interpretation before we apply all causality to China. Oil prices trending down anyway, equity market directionless yet in wild ranges in a quiet August and the expectation of grief in September via high yield, Fed rates, Greece re-ignition and global slow down which includes a China function anyway. China can be seen as the trigger rather than the bullet.

One statistic being banded around is the impact the 1.8% move has on Chinese oversea debt.  Costs of $10bio are cited but this really is nothing in the great scheme of things. There is also the other side of the equation. State figures and private sector figures are regularly cited separately to highlight arguments. In a country such as China it may be more appropriate to look at the net 'China Inc'.  China holds +$3 trillion in foreign reserves so in the net balance for China Inc  things are fine.

I stand on a limb in thinking that China will be fine and it has enough control over itself to get through. The Chinese long game is long with short term fluctuations often working to long term advantage. I have talked before here about the opportunities China has to acquire commodity infrastructure due to the collapse in commodity prices. Shifting reserves from US treasuries to purchasing the structure to supply your future needs seems eminantly sensible, even if the balance sheet accountants of the world feel ‘reserves' should only be overseas debt.

China has opened up a new front for intervention but the response by the market appears extreme. it reminds me of the classic Daily Mash spoof with regards to global warming - 'I’ll be just fine says planet’. As with Earth and global warming, China will be just fine, it’s just you that may not survive. 

Car manufacturer websites - Worse by design.

These days I am spending more of my time in the world of design and a fascinating world it is. The folks I work with are exceedingly talented and have creative skills that I just envy. Everything they touch turns to beauty.

Yet the world of design is not about just making things beautiful, they also have to be functional to the point that whilst the beauty and representational aspects of the design inspire emotions that support the product, the functionality must not be encumbered. If both functionality and beauty are enhanced then we are definitely moving in the right direction. I say right direction because something  I have noticed and am doing my damnedest to change, is that left alone a creative’s project doesn’t have a deadline, it has a half life. A thing of beauty can, fractal like, never be perfect to the nth degree. Pixel 1475.674 may just not be the right shade of grey, so the Pantone swatches magically appearing from the designer bible of Pantone swatches to decide if Pantone 431 suits the mood better than 432C for that individual pixel.

To us City folks this is just anathema. A project has a deadline and we aren’t used to there not being an absolute best answer spilling from a black box under a desk coded by the best 12 year old quants that France and Russia can produce. Yet I am constantly amazed at the quality of work the creatives produce, yet agonise over. And they don't just agonise over the beauty, the functionality is key and this is where I step in. I am used as the creative’s test client where my short attention span demands that messages are arrived at promptly and delivered clearly. God forbid there is one unnecessary click enroute.

After a life time of reading financial research, or trying to with limited time and patience, it didn’t take long to work out that the best pieces were written backwards. Not the words, the layout. Conclusion first, preferably in simple idiot terms such as “X asset - BUY it”, followed by the bullet points as to why to buy it, followed by the breakdown arguments of each bullet point and finally, for those that really could be bothered (not me), a fat appendix of all the workings and supporting references with Greek letters. No one has time these days to start on an unplanned adventure into a 10,000 word document in the vague hope that at the end of it there will be something more tangible than - "In conclusion we find that there is no supportive argument for believing what we hoped we could believe in the first place. Thank you for allowing us to waste your time".

Instead the headline is key, the next level has to be the hook and then the drop (I sound as though I'm describing a house music template). The reader has to be lured into the exploration of the argument for at any time, if their attention wanes, you’ve lost them. And so it is with any form of marketing.

The critical space for marketing is now the web and building websites is an artform at many levels. Providing the information you want to provide whilst providing the visitor with the information they entered wanting, with the whole experience enveloped in visual or (to be avoided) audio background designed to shape the visitors emotions requires skills married from different professional backgrounds.

And here I pause and take a deep breath.

Because

Here goes … WHY THE #### CAN”T ANY CAR MANUFACTURING COMPANY DO IT?

Car companies have the world’s greatest financial resources, in many cases greater than those of governments, they have the world's best engineers, they have an industry built on selling dreams and aspirations, they are highly dependent upon marketing and advertising, yet they cannot produce websites that are easy to navigate. Instead they have websites that must have cost fortunes as they employ every available piece of up-to-date web designer bling, to the point of making the things more difficult to get around than London on a tube strike day.

Here’s an example and a little test. Start a stop watch, click on http://www.volkswagen.co.uk . and tell me how long takes you to find the performance and fuel efficiency data for the top of the range sporty Golf diesel versus a mid range, both with the automatic box.

Dumdy dumdy dum... How are you doing?
I’ll just go and put the kettle on.
You not finished yet?
I’m just popping out to lunch...
Saw John down at the cafe, he sends his best..
Ah, you are back!

So did you enjoy that website? Did you find out that the sporty Golf is not actually listed with the Golfs? Did you stumble into petrol engine land unable to return or find diesel land? Did you enjoy the fact that each category of data demanded a drop down list that that could not be open at the same time as any other data? Did you discover and delve into the parallax scrolling down the page that wasn't obvious, in case it harboured, but didn't, the information you were after?

It is not the worst by far with Ford, Mercedes, you name it, all dragging the poor visitor into an Hieronymus Bosch styled web experience. Faustian nightmares. Websites designed along the same architecture as the film ‘Inception’. Yes I got lost in that too, not helped by falling asleep during it and having nightmares of the Audi website only to find that I was a dream within a dream and I was looking at the VW site.

I am a simple soul who wants the information he want’s, like.. NOW. And if I don’t get it I will be gone. I have no interest in two giggling morons acting out a car review in a video insert. I have no interest in 'clicky here, ooh the door slowly opens to show the inside graphic'. Why do I have to wait for the door to slowly open? Just to please a smarmy developer who has unloaded another £50k’s worth of web-bollocks on to an over-keen marketing director who has more money than sense? I have no interest in cross referencing to things I didn’t ask to look at, such as a Venezualan tribesman admiring the vehicle airlifted into the jungle to represent its 4x4 'go anywhere’ ability, when the toughest obstacle the transmission is going to suffer is a quinoa and pomegranate salad spillage outside Ottolenghi’s.

It is late at night, I am tired, I have had a day willing up oil prices. I started willing them up as I put my neck on the line on Friday looking for a bounce in oil, but ended up willing them up in the vain hope that oil becomes so expensive no one can afford to run a car, car companies go bust and no one has to experience their dreadful websites anymore. Or at least they do so badly their marketing budgets are microtomed down to such a thin wafer of their past bloated selves their websites are a simple one page PDF comparison sheet.

Oh, imagine that. A car company producing a single page PDF comparing all the key variables of each model. Those were the days. But, Mr Large Car Company, if this missive has landed on your desk and you are willing to bring in a team of highly creative geniuses, managed by a man who knows functionality when he sees it, to create a website for you that gets the message across without inducing hate in your brand, then I may be able to help.

Commodity dumps, rate rises?

When I wrote two day ago that I was concerned that credit and leveraged tech could be on for a walloping I really didn't expect you all to read that and smash the market the following open, But thank you. At this point I should publish a book and set up a hedge fund beginning with P and appear on CNBC every lunchtime because it is obvious that I am a guru and we can all ignore the fact that most of my calls are rubbish and I happen to have got lucky for once. It works for many 'gurus' out there so why not me.

The last bit of luck I had was back on March 17th when I wrote a post  here suggesting that oil would base that day using clues in oil stocks.  Luckily it did and it has taken 5 months to get back down to the levels seen then.

The psychology of oil prices feels very much Elliot 3rd wave, and 3rd waves are meant to drive to lows well below the wave 1 low, yet there has been an overwhelming capitulatory mood for the last couple of weeks. Supply supply supply. The story has even gone 'Ambrose Evans Prichard', with him moving on from Europe to waving his 'end of the world is nigh' banner over Saudi Arabia.

But now price actions are beginning to suggest another base may be in place. Yesterday saw dramatic falls in my dodgy oil stocks that  looked capitulatory. But more interestingly the price action this morning is reflecting the pattern I last saw on March 17th with the stocks putting in healthy bounces.

Premier Oil vs Brent 

BP vs Brent 

Tullow vs brent 

So, I am trading my luck from the credit /tech call and doubling up for a call on a base (for now) on oil.

Now call me old fashioned, but one thing I am having problems tallying in my brain is how we can have an environment of strong enough growth to produce interest rate rises yet weak enough growth to crater commodities. I know that there are ways we can explain it, but the explanations feel too complex. I am looking for a simple Grand Unification Theory formula of e=mc^2 simplicity, not the complexity of the proof of Fermat's last theorem which has to invoke jungle treks through diverse mathematical fields.

On the commodity side we have China and EM demand falling matched by increased supply (as @georgepearkes beat me up over). On the rates side we can say (as @M_C_Klein of the  FT's Alphaville team kindly reminded me)  that the US move is not inflation expecting but just normalisation. All true, but I still find it hard to marry the basics. If we have strong enough growth to justify rate rises then we shouldn't be seeing cataclysmic commodity sell offs. Either commodities are going to bounce from or we are heading for a Greenspan rate moment.

By the time you read this we will probably have had US NFPs,  seen as the last clue for Sept US rate action, but I am completely bored by them.

NFP  - NFI

Leverage and hope - Twins of the financial apocalypse

Yesterday we saw Fonterra announce another 10% drop in milk prices. So you can slice another 10% off this chart updated last month from their website

Once again the antipodean dream of never ending Chinese demand is turning into more of a nightmare. It’s a simple rule of business. Never expand production reliant on one client unless you are sure the contracts are binding. New Zealand is just experiencing what any UK dairy farmer has experienced at the hands of the large UK supermarkets. China is behaving like a UK supermarkets who promise the earth then backtrack and pin the suppliers down once they have no other buyer.

I went into this in last week’s post with regards to China’s next logical step being to buy distressed commodity companies and infrastructure rather than the commodities themselves so was reassured to see this mornings headline that a Chinese state owned company is looking to buy into Australia’s Fortescue.

Shares in Australia's Fortescue Metals Group jumped 9 percent on Wednesday, boosted by a report that China's Hebei Iron & Steel Group and Tewoo Group could invest in its infrastructure and mining assets.

Well there you go then. The greatest asset the Chinese system has compared to the West is long term planing unclouded by 5yr leadership rotation.

The outlook for equities is confusing me. On one hand I am looking for a move lower as growth and data disappoints, but I am very wary of a bearish sentiment that is getting worn down by lack of moves lower.

Sector rotation has kept the indices fairly intact with commodities being offset by tech but it leaves me wondering how long the ‘make up a number’ world of tech stocks can withstand the latest slew of soft data instead just absorbing sector switching from hard ’stuff’ to investment in hope backed by a reverse justification that as it’s at relative highs it’s ok.

My core concern is that we have seen a compression in credit that still sees real default risk miss-priced through the price anchoring effect of low global yields. I am particularly struck by the very low yields demanded on financing deals. There have been very few notable company failures recently and knowing how pricing models work, lack of past defaults is normally priced as lack of future defaults. Ooo err.

Most balance sheets have been wrung dry through accountancy tricks normally sponsored by private equity buy-outs NPVing future cash flows based on current optimism, borrowing against it and walking away with the borrowings leaving the less savvy lender, who by definition doesn’t understand the company as well as those running it, with the risk. Much as CB monetary policy has little ammo left, should things turn for the worse, these corporate buffer zones are wafer thin. If there is a turn down or a hint of a problem the disasters could be March 2000 re tech and Sept 2008 re financing leverage unwinding.

Of course we are absolutely fine until borrowing rates increase. For the past two years I have doggedly been putting ‘March 2016’ against any survey for the first Fed move higher. I may well be baled out by recent data, expecting expectations in the most time wasting game of this decade (Fed hike guessing) to once again be pushed back. But I am much more concerned about swings in credit related spreads than the core CB 25bp here or there. As anyone with a poor credit history knows, the base rate is the least of their financing concerns.

Where will the tip come? As regular readers would have noticed I have an inherent loathing for arguments based on past event arguments (normally expressed through clever scaling of past and present charts) BUT, I am willing to agree that some of this is looking very 1999. Commodities through the floor and tech through the roof. So my money is on stupid tech being the weak point, not Apple cash cows, but the 99% of the start-up portfolio that has been bought on the assumption that the 1% mega-winner will compensate for the loser rest. Tie my 'tech hope' and financing concerns together and I worry that if there is a turn down or a hint of a problem the disasters could be both March 2000 re tech and Sept 2008 re financing leverage unwinding. Don’t get me wrong, i’m not calling this as a high delta outcome but it is a fat tail.

But back to the shape of equity markets and I am till fascinated by the tech/commodity spread and find a glut of extreme commentary particularly interesting. to the point I am going to stick two fingers up at popular opinion and buy some oil and commodity stocks. Nice low geared big ones.

French Management.

I have just returned from a delightful few days on the sunny Mediterranean island of Ibiza. At this point, if you have heard of Ibiza, you will be probably readjusting your perceptions of this author as visions of large throbbing nightclubs, drug fuelled raves, foam parties and beaches covered in tattooed european muscle and scantily clad ladies flood your stereotype receptors.

Well, I am happy to report that there is another Ibiza. One of massive isolated luxury villas, frightening expensive beach bars (dripping in cool), superyachts (my word, the bays were rammed full with them) where time can be spent lying on shaded terraces, dipping into empty infinity pools and dining on the most exquisite food.

I am also happy to report that I can’t afford the latter or cope with the former, so sat on less expensive terraces in less expensive villas looking at other people’s superyachts and sipping just a couple of drinks at the Blue Marlin and ordering the pizza rather than lobster before my credit cards stopped working. It was delightful and relaxing none the less.

But dozing in the Mediterranean sun, the distancing from the markets and reducing the inputs whilst freeing the lolling soporific thought processing appeared to be more profitable than the high frequency overdosing of every single bit of news that most traders and screen jockeys are subject to. I managed to close equity shorts and go long on Tuesday open and have just reversed that trade on the Friday open on very few inputs. This is a theme I have found echoed recently by other ex-City Gods who have also found their predictive powers of market moves have become easier since they rid themselves of the clutter of IB chat inputs, the stream of Bloomberg headlines that nowadays appear to have a random red function to them as Bloomberg's talent for spotting what is important or not is becoming positively UK Labour party like. I am, of course, referring to the Labour Party’s instance that the most important issue in the world now is the use of the word ‘swarm’ by the Prime Minister.

The practice of moving attention away from 99.5% of the issue by focusing on an irrelevant 0.5% of the issue is classically political and I think we have all seen it used in dealing rooms when a cock-up occurs to attribute blame to the person chosen to take the fall. Pricing models might have may have failed, bank process may not have been in place, management may have turned a blind eye or implicitly encouraged, the phones might have been dicky and the client a duplicitous bastard, but some poor sod will be going down and reported to the FSA because he didn’t use the correct shade of blue pen when signing the deal slip. I have particularly found this method applied in French banks as the French do tend to have a skill at picking out the irrelevant 10% of an plan to stall it or trip it up.

Having worked in said institutions it wasn’t until too late in my management careers with them that I worked out how French project management varies drastically from the Anglo method. In the Anglo world to solve a problem, lets say bridging a gorge, the team allocated the task first assess all their needs (how much timber, ropes, man hours, pully blocks etc) and present the plan to management who then sanction the allocation of resources and the project goes ahead. However this isn’t how it works in French management, who are famous for asking the question "That is all very well in practice, but what about in theory"

The French method is for management to mumble that it might be a good idea to cross the gorge. Any plan presented to them by an underling is studiously ignored, instead all teams below are then expected to scavenge resources - read as 'fight each other, steal, stab, betray and compete for’ - to build a structure to cross the gorge which is constantly under attack from the other teams trying to steal its components and make it fail. Whilst this is of course hugely inefficient it has huge benefits for management. If it fails then it was not their responsibility as they never sanctioned it, but if it succeeds then it is their success, with the winning team leader, who is now proven as a vicious backstabbing bastard, being promoted one step up the ladder.

This should come as no surprise as it was Napoleon who most effectively employed this management technique, making sure that all his generals were fighting each other enough to leave his own position safe from threat. There is one other person who may be a skilled master of this technique too, a man whom I once met and was depressed by his propensity to talk about the size of his personal wealth over business issues. He is now Chairman and recently self appointed CEO of a large UK clearing bank. I think they even have a branch at Waterloo.

Commodities - China plays a blinder, Gen Y are renters.

Back in 2006-7 commodities were on a tear and oil was following not far behind. Speculators were hoovering them up as part of a the next great asset theme that was, like most new asset classes, based on the fact that the price had already gone up so it must be an asset(I wish you add here that foreign exchange is not an asset. A foreign currency can be but being told by your friendly FX salesperson that playing the currency markets is an asset is nonsense). Buying commodities for speculative or investment purposes is a game of storage. The commodities that are on their way from miner to end user are syphoned of into a metaphorical and often physical storage tank and held to be sold at a hopefully a higher price. When the markets turn this tank of speculative holding is off loaded adding to the supply. Rather than smoothing price moves they are exaggerated.  

The love affair with commodities is well and truly over. Many of the largest producers have been through a phase of hand wringing and CEO dumping as avarice induced supply investment has lead to Wiley Coyote moment of self induced collapse. The lags between investment decision and outcome are painful and you only have to look at the Baltic Dry Index to see what a pre-emptive glut in ship production has done to shipping prices. Through all of this I think China has played a stormer. I know that there is a natural tendency to believe that China has little  control over its behemoth economy (Exampled by recent Chinese stock moves) but in the bigger plan I do think they know what they are doing. With commodities they have sucked in Australian commodity producer hubris and spat out the bones. 

If I had a 20 year plan I would have done exactly the same. Allowing the idea of massive future demand to proliferate catalysing investment in new supply at an unprecedented level. At the same time watching speculative demand drive prices even higher adding further justification to the Capex spend. But once greater supply comes on line you then reduce your demand and watch the price of the commodities you ultimately need collapse. The speculative storage tank drains in a panic pushing prices down further and the reaction hits the stock values of the producers. 

I mentioned in my last post that this stage of the commodity market is much like a breath holding contest. The strongest companies will survive with the weakest drowning (much as we suppose the Saudi oil policy has been) leaving the survivors with a scorched and fertile ground around them on which to build even stronger. The current commodity price collapse is similar to the misuse of antibiotics. They wipe out 95% of the bacteria leaving the resilient MRSA types with no competition and fresh space to colonise.

I know this is speculation but the next logical step for China is to buy up distressed commodity providers for a song. Not the commodity, the company and infrastructure that supplies it.   

But what of core demand for hard metal things and all the stuff that is made from commodities? Global demand is weak it is true, but there may be another trend arising. Aspirations appear to be changing with the arrival of Generation Y, they appear to be a generation of renters rather than owners with little desire to own one of everything. Perhaps this is born from having to live in ever cramped accommodation where it is impossible to store a lawn mower ( even if they had a garden), chain saw, workbench, ski kit, surfboard or garaging a couple of cars. Not a bad thing perhaps as I survey my garage suffering a lifetime of power tool purchases that probably see action once every two years. Renting when needed is a much more efficient use of materials. As they say, if it flies, floats or fulfils a rare need (I had to change that) - rent it. 

Perhaps the West is reaching an end to its insatiable demand for personal stuff. We have an overhang of it as my garage is testament to. Give the next generation a phone, a laptop, superfast broadband is a shoebox sized apartment, with a Starbucks and artisan burger dive next door, no car and they appear to be as happy as Larry. Suggest to one of them that they buy a large house with 6 acres for the same price as that shoebox and they ll run a mile at the thought of having to look after it. Perhaps the common theme is that the next generation cannot be bothered to look after anything as it gets in the way with enjoying themselves or earning money in jobs that program machines rather than making them. 

Summer Ramblings

Amy Winehouse, Back to Black. Or rather going back to oil, as the Black is in the Red. The first dump in oil prices was always going to see support from those looking for supply to fall in response to price. It didn’t. The bounce was mainly short covering and we are now seeing a more realistic pricing to supply. This time we could make new lows.

Resurgence of High Yield/ Oil linked concerns. Companies and individuals can only hold their breath for so long. The first dip was manageable out of cash reserves or lending lines. This second dump is like being pushed back under water just after you broke the surface but before you managed to catch a breath. Nasty. Minor oil stocks reflecting this pushing to lows below those seen when oil was $6 lower than here.

The bauhaus chair model of oil supply and demand is proving valid with price sloshing around between the horizontal sections with no supply side change.

Individuals in the oil industry are also going through a capitulatory transition. Friends I have in the technical side of exploration have given up hope and are running out of cash and are seeking any jobs to plug the gap. 'FX Taxis’ faces competition from ‘Oil Taxis’.

Having said all of that my gut says oil will pause and bounce after its recent move lower, as my pertinent leading dodgy oil stocks stopped falling 2 days ago.

Commodities - Much like oil the second wave downwards is doing more damage than the first. BHP and RIO now coshed to new lows but I feel that the big boys finally falling is part of the last move. Fact of the day. The earths crust is 5% iron and 8.3% Aluminium. Ok, I know it’s density of distribution and cost of purification that counts but it’s still worth reminding people of when they go on about global shortages of stuff.

Almost as good a thing to remind people of as the population of New Zealand. Last night the newswires and twitter-sphere was alive with NZ rates news. I love New Zealand to buts ('bits' in English) and would happily spend the rest of my days there, but for Joe Blogs speculator or Mr Large US bond manager, it is worth remembering that it has a population the size of .. errrr.. West London or let’s say 1/5 that of Sao Paulo, or many major Chinese cities you have never heard the name of let alone can pronounce once you have. The NZD is a great currency to trade, it moves, it has yield, you can pretend you know what it’s going to do by watching esoteric Fonterra dairy price auction websites and you can even pretend you know where New Zealand actually is on a map, but let’s remind all those armchair dairy farmers in the FX market, that it is a tiny economy and a tiny island but the danger is that speculative flows can at times become positively Icelandic. The only contagion that could ever come out of New Zealand is via hot money lost. It could sink without trace and the only ripple in the markets would be a 4 foot break on a beach in the Cook islands. Don’t worry NZ, love ya really.

Gold - So it’s a metal that, much like bitcoin, has no relevant method of valuation other than the price it is at. Large collapse or rally so what? It’s immaterial to all other than those have been buying everyday since 2011. Gold is the ultimate buy and hold as the reasons expounded for buying it never go away. A religion in as much that it is selling a dream afterlife, but you’ll be dead before you see it.

‘Techapple’ - So they didn’t kick the ball out of the park, but I’m reading the price response to the poor figures 2 days ago as much as a comment on the state of tech indices. Flighty and fidgety. With gold and oil falling and Tech rallying it was all looking so late 1990s. But to be honest tech is a nightmare unless you are on the inside. Oh, that's illegal isn't it, in that case I guess Bono is a financial genius. There was me thinking he was just a jumped up singer man with over inflated impression of his worth to the world with good connections. Silly me.

Greece - EU policy has been to cover the turd on the Greek beach with a towel. Still sure the EU just want the problem to go away until September so they can all head off to Antibes for their nice August break. 'Nightmare on Ellas Street 3' is in post production. Odds on any Eurocrat doing the decent thing and spending their holiday in Greece? They should make it compulsory. As banks make their employees do a day’s fence painting in the local community centre so they can tick off their 'caring for the community’ marketing spin, so EU should send employees to Greece for a day’s pro-bono work. For anyone who hasn’t yet worked out why Greece can’t work go and read up on the Mundell Fleming model and realise that the only escape valve is capital movement which is exactly what the EU is strangling.

What else? Ah yes - Jeremy Corbyn leading the polls for next UK Labour leader. Can we really, one day, see a global leaders summit consisting of the world’s mightiest statesmen and there amongst them a guy looking like a 1970’s Open University lecturer?