Financial beliefs are like a -

Someone very kindly posted this on a twitter feed about religion

Religion is like a penis
It's fine to have one.
It's fine to be proud of it.
But please don't whip it out in public and start waving it around.
And PLEASE don't try to thrust it on our children!

Now whilst not exactly new as a statement, indeed it has been used by friends in the most polite of manners when encountering evangelists from any religion at their doorstep, it had me thinking. Niether about religion of penises as it happened. But about markets.

If we think about this statement in terms of market beliefs rather than diety beliefs it does sort of sum up what I feel is a growing antithesis to having other people's market views rammed down your throat.

The similarities to market beliefs and religion are multiple. Let’s start with why people even bother to read other peoples opinions. It’s normally because they are lost and looking for substantiation of embryonic beliefs of their own that need a more solid structure for them to grow upon. Much as coral spawn prefers the support of an old wreck rather than growing alone on a sandy seabed. The provision of a structure on which to grow and hang one’s own beliefs upon gives a sense of structure and symbiotic social support to shelter within when facing the uncertainties of the world.

But what happens when some of the tenets of the religion you are hanging on to for your own psychological support are seen to be eroding when viewed in a dawning light of reality? This week we saw the catholic church, in fact the Pope himself, decreed that evolution and the Big Bang did occur,  but after a quick repackaging under the legal terms of the religious contract it can still be seen to fit with the existence of God as the creator. It’s just that he did it a bit earlier than they first thought.

The back fitting of theory to fact sounds somewhat reminiscent of talking to an economist, market strategist or in particular a Elliot Wave technical analyst. Any new evidence that might at first be seen to contradict the original premise is shoe-horned to fit. Even if the resultant product looks like Pavarotti in a mankini. Yes, the theory may well be just about holding together but the bulgy bits around the edges leave those that came to worship the most beautiful of thought wondering if there is only so much botox, filler and liposuction that can be applied before the theory looks more like a, well, something unpleasant and not worthy of taking home to your mother.

So this is where we get back to what has been occurring in financial markets. The last six year have seen the crystallisation of two great religions. Those that expect the end of the financial world as we know it (put into this bucket the end of fiat moniests, stock market plungers, goldbugs and anyone who reads Zero Hedge and thinks it’s a balanced view on the world) and those that think that the great game will grind on and that new market highs in unexpected areas will occur again and that actually mankind has a habit of making sure that mean reversion plays out as this is actually the path to the least loss for mankind on the greater scale. Basically the churches of the black swan and the white swan.

When a religion becomes suspect it is natural for those that follows it to look for a new home into which to park their belief. As it was in 2007/8 when the church of the white swan was toppled by a few uncomfortable truths that had new followers queuing at the doors of the church of the black swan. Since then the church of the black swan has held sway during the Euro-crises and the catalogue of major newsworthy events that are normally communion wafers at their altar. Except something didn’t quite fit as the tails failed to occur and everything started to mean revert. Which meant that some of the black swan followers started to drift back to that of white swan again.

The two churches have had there odd rumble throughout 2014 with an EM crises, Putin, ISIS, QE ending and European growth flatlining etc, but it wasn’t until this October when old rivalries broke out into serious street rioting. Massive market schisms had the high priests from both camps back out and preaching from their soap boxes. The battle was fierce with financial markets taking one of the greatest short term pastings they have had in years. Only to recover.

Which leaves the followers of both cults back where they were when they first looked for a financial religion on to which to cling. Lost and confused. As the purpose of a religion is to remove the feelings of lostness and confusedness this is not the best return on a few years of heavy investment of belief. In fact it could be comparable to investing in many macro funds this year where they have sold a great story and can prove a great track record but at the end of the day they have yielded zero. A result that leaves the investor wondering if either side adds any real value with their opinions and perhaps it’s more valuable to work out your own (investment) morals from first principles rather than reading or listening to anyone else. Once again that can apply to deity or market beliefs.

The current noise of opinion may well see a backlash in a new belief in the self, a belief unexpressed, other than to be acted upon and I have a sneaking suspicion that readership numbers of financial blogs and bank research may be starting to substantiate that theory. The catch is, if you have read this far and believe any of what I have just written, then you have just proved me wrong.

Eight Topical Questions

There are now nine questions to this paper (there were eight but the BoJ has just inserted another). You have 10 minutes to complete the questions without resource to Twitter, Google or calculators. You can turn over your question papers.... Now.


If you were Chair of the Federal Reserve would you -

a) Give clear guidance to future policy
b) Give clear guidance that was couched in terms of ifs and maybes to make it unclear.
c) Just make sure that real interest rates were always negative.
d) Retire as soon as possible and go on the lecture circuit having seen how much your predecessors make.
e) Have bought gold with your QE instead of bonds and watched ZeroHedger goldbugs explode in a logic loop as to whether QE was a good idea or not.
f) Pick up the phone to Europe and tell them it’s their turn to do something.

If you were President of the ECB would you -

a) Do everything possible to stimulate the Euro economy without doing actual QE.
b) Do QE and ignore Darth Weidmann and the Bundeathstar’s protestations.
c) Go back to Italy, or your job at Goldman as apparently the politics are similar.
d) Take the BBC News path - get interviewed, tell a sob story (no matter how cretinous), blame everyone else and sell a moralistic argument to try to garner sympathy as to why tax payers should bale you out as at the end of the day it's the governments fault.
e) Pick up the phone to Japan and ask them to throw again, apologising that you know it’s your turn but you are having a bit of a problem in the old German department.

If you were the Governor of the BoJ would you

a) Bide your time
b) Expand your monetary base further to keep favorable momentum in price expectations and continue QQE until you have stable 2% inflation
c) Realise that your only inflation is coming through JPY depreciation and, though the wrong type of inflation, hit the JPY crash dive button.
d) Put down the phone to Janet, calmly tell your deputy that you would like him to bring you every bond in the world and then walk silently towards the cabinet containing the family ceremonial sword.
e) Put down the phone to Mario and buy back all the newly minted Jpy for Euros, then go and pack for the 'holiday of a lifetime' you have just won for a luxury-all-expenses-paid-stay-as-long-as-you-like trip to Brussels.

If you thought someone in a town three miles away had Ebola would you -

a) Be exceedingly unlucky to catch it considering how difficult it is to transmit without contact with bodily fluids.
b) Put yourself in quarantine, apart from the odd bike ride.
c) Launch a petition to save your dog.
d) Buy shares in a Hazmat suit manufacturer and then ring Fox News to tell them it’s more contagious than flu and that the whole of the USA is going to get wiped out unless they buy Hazmat suits… and then take profit.

If you have just returned from a three week holiday on a deserted island would you -

a) Glance at your screens and decide nothing had been going on in US stocks and look forward to taking profit on the lazy long later in the year.
b) Laugh at your amusing broker when he rings to tell you you were stopped out 7% lower.
c) Pull up a chart of ‘what happened whilst I was on my holiday’ and, ashen faced, cancel Christmas.
d) All of the above.
e) Book another holiday and reallocate the huge profits from your leveraged position on a 14% move that you may or may not have had anything to do with starting, whilst stroking the long-haired white cat on your lap.

If you were an oil trader would you -

a) Be just fine as it’s nice to see some volatility at last.
b) Be launching a guerrilla advertising campaign to promote 12 litre SUVs.
c) Be long Saudi oil co’s vs. short the Scottish Independence Party budget plans.
d) Be stunned that just as the investment bank you work for has fired everyone else on the desk as commodities are dead leaving you alone to turn the lights out, it all boots off again and it’s apparently your fault that all the lines aren’t getting answered.

If you were a market strategist would you -

a) Make hum-drum consensus calls because it is easier not to get eaten if you are part of the shoal.
b) Make calls by looking at recent moves, getting a 15 meter ruler, extrapolating the line and placing your target at the end of it.
c) Not give a damn as to whether you are right or wrong as you don’t have to actually run any positions.
d) Use a Twitter feed as your primary source of ideas.
e) Do an MBA to go with your PhD in economics and your term at the IMF, in the hope that it will improve your forecasting ability from the 50/50 it seems to be resiliently stuck at.
f) Have left years ago to run your own fund being one of the few that is fairly consistently right.

If you were a ruler of a large super-power would you -

a) Say one thing and do one thing
b) Say one thing and do another.
c) Invoke sanctions upon those with an aggressive stance you wish to change.
d) Relish sanctions being invoked upon you as it helps your cause to rally nationalism and stimulate local production to replace imported goods all the while being able to blame imperialist bullies.
e) Assume that your influence over third parties towards threatening states would hold firm as they owe an allegiance to you.
f) Enjoy watching your neighbours squirm as winter gets cold as you have your hand on the gas taps.

If you were on the International Space Station waiting for supplies would you -

a) Invoke contigency plan epsilon theta from your ‘Advanced Space Stationing' training manual and carry on as usual.
b) Wonder why they are letting off fireworks early this year on the eastern US seaboard.
c) Cheer as you can have a month off doing sudoku puzzles in your bunk as the next experiment they were sending up has just vaporised.
d) Turn ashen as you notice you are down to your last roll of toilet paper.

A Plumber's Guide to the Blockage in ECB Liquidity Transmission.

There has been a lot of talk over the past two week’s about European banks, their balance sheets, ECB corporate bond purchases and the general provision of liquidity to the economy by the ECB and how and if it is actually reaching the intended beneficiaries.

I have followed the liquidity analogy to come up with a water pipework diagram of how I picture this. I know this is far too simplified but here we go -

After the various financial crises (global and European banking), the first destination for central bank liquidity has been to refill the balance sheets of the banks so that once again replete they can start to pump money further down the pipe towards the rest of the economy. The debate still rages as to whether the European banks' balance sheets are in a fully functioning state yet to pass on the liquidity as has been testament by the debate over the European Stress tests, but let's assume they are and the liquidity flows on.

Once released from the balance sheets the liquidity is passed out of the banks on to corporates and to the general populace but not after seeing a proportion syphoned off as bank margins to support more onerous credit and regulatory costs and of course as, hopefully, profit.

One of the concerns has been that banks have been absorbing the added liquidity to such an extent that they have haven't been effectively passing it on and this is why any new ECB program to purchase corporate bonds directly will bypass any restrictions to flow from the banks instead benefiting corporates directly.

So now corporates are getting liquidity injections from two directions. But there is still no benefit to the economy unless they utilise that liquidity in a way that will lead to growth. There is plenty of evidence, though I am too lazy to find and quote any here, that cheap corporate funding has done little to drive corporate investment with cash instead piling up or being used for share buybacks or M+A (which is usually designed to decrease investment rather than increase it). It is at this point that the blockage in the transmission process is occurring.

So here's the catch. If corporates spend on increases in Capex, R+D or other forms real investment, we would see that flow through to jobs, wages and ultimately spending and growth. However in a world of low growth a corporate is hugely unwilling to leverage up if there is no apparent demand. Chicken and egg indeed.

Whilst we hear concerns about unblocking the banks' transmission process (acknowledging the point that the demand side is weak, we are looking at supply side here), I have heard very little about regulatory change that would encourage corporates to spend productively rather than save, other than via monetary policy. Perhaps it is time for the overactive regulators of Europe to turn their beady eyes to those corporates who have been benefitting from cheap liquidity but haven't been passing it on.

Perhaps any ECB corporate bond buying program should be limited to companies that have agreed to some form of spending program as those with the best credit ratings, who will be able to most easily access ECB liquidity, are those in the best shape to pass it on.

The Demise of Dickus Arrogancis

Macro Hedge Fund performance has been a notable casualty this year with much of it being blamed on the way that markets aren’t following the usual play books in response to tried and tested headlines and information. Middle east blows up? Oil tanks. US Economy picks up and taper is on the way? USTs soar. The list of ‘that shouldn’t have happened’ trades is pretty long but if you are a savvy macro investor you either saw the changes coming or you adapted to new rules pretty fast. So the poor performance is due to either macro being packed with mechanists who recite the mantras of the past and don’t adapt, or something else is happening.

I have met a lot of hedge fund portfolio managers over my years and in my eyes they can be pretty much be broken down into the following

Hugely brilliant who know they are brilliant
Hugely brilliant who think they are average
Hugely average who think they are brilliant
Hugely average who know they are average
Hugely poor who think they are brilliant
Hugely poor who think they are average
Ones who were let go last year.

The hugely brilliant who know they are brilliant I will always doff my cap to and enjoy any pearl they drop before swine such as I, but I will run a mile before becoming the butt of their joke.

The hugely brilliant who think they are average are a delight and I would sit at their feet all day as the boy would at the feet of the great philosopher.

The hugely average who think they are brilliant I will accept for their ability to be average and maintain a job in a world that is ruthless. However I will always grimace at their peacocking and wince at their airs and wonder with deep suspicion as to what it is that makes them think they are brilliant.

The hugely average who know they are average I always have respect for, for it is they that remain courteous inquiring and eager to engage on a level playing field.

The hugely poor who think they are brilliant I am quite happy to kick down the career stairs if I can and there is never a staircase far away in that business.

The hugely poor who think they are average I will give charitably to, but I will know that they are, in reality, not long for this world.

Now let’s cut to the chase. There are portfolio managers whom I have met who couldn’t argue their way out of a paper bag and yet have managed to peacock and maintain well paid jobs in otherwise ruthless institutions. It is they that I have always assumed were the luckiest traders alive,  or had photos on the boss, or had other ways of making sure that their position was secure. Mostly they could be characterised as a number two, in both metaphorical terms and in market menagerie terms (see here). Otherwise known as Dickus Arrogancis.

Dickus Arrogancis, I soon realised had a particular skill in making money. The amount of business he would allocate to his brokers was rarely based on deep thought or probing economic analysis, but more on market contour analysis. Well, that is what he may well have termed it, but to the Joes on the street it was information. Of course not INSIDE information, just information inside . The whisper that Mr Big was ahead of him on the bid, the nod that buying now might be a good idea rather than in five minutes time. The suggestion that perhaps if there was to be an interest in the fix then it may just be left hand side.

Which of course sounds preposterous as that sort of behaviour would have been sniffed out with the investigations into fix fixing when every trader communication was examined for any sort of leak. But in my opinion, the number of bank clients investigated for use of information that may have been at least a bit borderline has remained remarkably low. Remarkably. If one was a cynic, which of course I am, I could suggest that it is easier for a bank to fire its own quietly than drag a huge customer into it, lose them and face potentially huge lawsuits from said customer. Not that this ever happened of course, but hey-ho, what do I know.

But the information game has changed and though I am sure the shoe-phone has adapted to survive, the risk reward has changed drastically and even if past misdemeanours (that never of course happened) went undetected, the jungles that are home to Dickus Arrogancis are no longer handing him a bounty of fruit and perhaps he is now an endangered species. Perhaps also some of the downturn in some macro fund performances is not solely due to the macro rules being different this time. The regulatory ones are too.

If so, goodbye and good riddance, Dickus.

Economist Cover Alert

We have just been treated to an indicator that out trumps any such voodoo as Hindenberg Events (Heisenberg Events are different and involve Breaking Bad), Golden crosses, moving averages or Fibonacci levels. This is the Ace of Spades in the pack of indicators. The mighty Economist Cover Alert.

The lull in the market battle that occurred around the 50% retracement level for US equities was brief and though it looked last night as though the fibonacci sellers were going to have their way with a rollover that was shaping up to dump again, it's now looking as though it was an ambush and the move back through this week's highs has followed through with a final bayonet charge that might carry all the way through to 2000 on SPX. I pity any poor soul who has just returned from a nice 10 day half-term break in the Maldives or such distant delight to be informed that they were stopped out 7% lower.

Of course that's just the US. The European markets have been languishing behind and that's why this Economist Cover alert is all the more interesting. Their full Europe story is here but though they paint a picture based on recent history,  it is hard to see sentiment turn much more bearish on Europe without a real fracture in structure rather than just bond vigilante attacks. Today's European data (released after the Economist piece) was a pleasant surprise and falling on such abject pessimism may be enough to turn some marginal sellers into buyers.

Please don't think I'm a raging Euro bull. I am just of the belief that with sentiment placed where it is, a lift in RoW sentiment out of last week's disaster zone, the US breaking higher, a bit of better Euro data and an Economist Cover Alert, it's worth buying the 'worst of the worst' and they are anything that contain the words 'Growth' and 'Europe' in the same title.

Battle Lines

It is now a week into the great 2014 financial asset price war with an uneasy truce having broken out after the first bloody squirmish between bull and and bear. Here are the battle lines -

Blood and gore. The mopping up,
Morphine the injured.
Euthanase the undead.
Carts of corpses slow retreat.

Regroup the regiments,
Reload the arms,
Rally with cries from leaders,
Taunt the enemy across the divide.

But hope for calm.
The dead cat's bounced
The supports defended.
Yet still there is no victor.

Fibonacci points mark muster.
General’s missives swirl by mail and meeting
Buy there, sell here, prepare.
If X hits Y, take Z.

The fog of war descends.
Leaves the world outside
With only rumour and supposition
Reported to the desperate

All know battle will be re-served
Cold with despondency
Hot with euphoria
Melted in a stock of fatigue.

The priests preach
To the disillusioned,
Rallying the righteous
Around their gods.

As the bibles of the past recite
“And as it was in '87, '00, '08 the great book says"
The tenets of technicality preach,
"And then in the fifth wave, after the 4th and the A,B,C, do we not descend to hell?”

The fires are lit, the horses shod,
The muskets rammed, the cannon fused.
And yet the calm of data see’s
The battle mists waft aimlessly

The lines are drawn.
Scarlet jackets, defiled.
The blues,
Their own fresh scarlet wounds possess.

But here they stand,
Their future faced,
Knowing each other’s victory
Reflects in enemy eye.

A strip of furrowed mire
All they are from glory.
The command they wait
To join the battle anew.

A Glossary of This Week's Market Headlines.

Here is a basic glossary to help decode some of the terminology used by the popular press this week in the aftermath of some price movements in global financial markets.


Liquidity - The ability to exit out of your position without the price moving so much you can’t exit out of the rest of your position.

Lack of liquidity - Losing money because everyone else is doing what you would like to.

Volatility - Something that most people have forgotten the meaning and value of.

Growth concerns - A backward fitting correlation between the momentum of GDP and price action.

Correction - A move counter to your belief.

Turn - A move finally going in the direction of your belief.

Stop losses - A reason employed by sell-side advisors to explain any sharp market movements.

Euro-crisis - A term used to explain otherwise unexplainable moves in European assets.

Positional adjustment - Hedge fund losses.

BIS reports on market instability - A story for the press to misrepresent as a reason to sell stocks when in fact it is related to potential bond market selling on a long term time basis which is all the more irrelevant as the bond market is still short.

Deflation concerns - A misinterpretation of commodity price falls as bad news when in fact they are good news for most western nations.

The need for more regulation - The belief in the non-existence of unforeseen consequences when the consequences are asked to be foreseen by individuals who have little comprehension of the whole picture.

Technical support - A hope for those long.

Break of support - A hope for those short.

Moving average - A number derived from history that some hope many will hope predict the future.

Largest move since (insert date) - An observation that fills column lines but has no predictive powers.

CDS price rallies - A natural move in the sister market to bonds that has no bearing on the actual chance of default.

Italy yields skyrocketing - A media description of small moves in Italian bonds to levels that three years ago would have been considered as Nirvana.

10% - A nice round number that can be used to insight fear or imply value.

Leverage - A disaster waiting to happen

Balance Sheet - Where most leverage is hidden.

Greek concerns - Stop losses in over-leveraged carry trades.

Overbought/oversold - It’s surely got to go down/up now

Expected Fed policy response - Hoping that the train isn’t more than 10 minutes late.

Expected ECB policy response - Realising that the train isn’t going to stop at your station.

Expected German policy response - Realising that the train never left Berlin.

The Four Italians Sketch

Spain and Italy spreads are trading wider but not as wide as they were on Thursday morning when the media were running with apocalyptic headlines along the theme of ‘Italian 10y yields tear higher to 2.71%’. These caused my screen to need a wipedown from the coffee expelled at the thought. A thought that can best be described by the Monty Python 'Four Yorkshiremen' Sketch,



Which really needs to be rewritten as four Italian bond traders:

FIRST ITALIAN:
Si, very tradable, that, very tradable bit of convertible.

SECOND ITALIAN:
Nothing like a good dose of liquidity , eh, Marco?

THIRD ITALIAN:
You're right there, Riccardo

FOURTH ITALIAN:
Who'd have thought three year ago we'd all be sittin' here trading 10yr on a 2% handle, eh?

FIRST ITALIAN:
In them days we was glad to get a price on a BTP

SECOND ITALIAN:
An off the run BTP

FOURTH ITALIAN:
Without a broker

THIRD ITALIAN:
Or a bid

FIRST ITALIAN:
In an offered market

FOURTH ITALIAN:
Oh, we never had a market. We used to have to pay a broker 25bp just to take our line and then trust their price.

SECOND ITALIAN:
The best we could manage was to call a local bank and threaten to close them if they didn’t buy 'em.

THIRD ITALIAN:
But you know, we were happy in those days, though we didn't trade USTs.

FIRST ITALIAN:
Because we didn't trade USTs. My old Papa used to say to me, “liquidity doesn't buy you happiness, son".

FOURTH ITALIAN:
Si, 'e was right.

FIRST ITALIAN:
Si, 'e was.

FOURTH ITALIAN:
I was happier then when no one cared. We used to trade in this bank with great big holes in its balance sheet.

SECOND ITALIAN:
Bank?! You were lucky to trade in a bank! We used to trade out of one boiler room, all twenty-six of us, no screens, 'alf the floor were drunk, and we were all 'uddled together in one corner for fear of regulator finding us.

THIRD ITALIAN:
Eh, you were lucky to have a boiler room! We used to have to trade our own accounts giving 50% to rent the desk space.

FIRST ITALIAN:
Oh, we used to dream of trading our own accounts! Would ha' been an investment bank to us. We used to trade for the central bank in an old water tank on a rubbish tip. We got woke up every morning by having a load of rotting credit dumped over us

FOURTH ITALIAN:
Well, when I say ‘bank' it was only a one man treasury department of a quasi-state credit-fraud scheme hidden behind a holding company but it were a bank to us.

SECOND ITALIAN:
We were fired from our quasi-state credit fraud scheme we 'ad to go and sell to the Chinese.

THIRD ITALIAN:
You were lucky to have the Chinese! There were a hundred and fifty of us working on getting away just a fraction of the 1yr Issue to some fool in a real money account in Scotland.

FIRST ITALIAN:
1 year?

THIRD ITALIAN:
Si

FIRST ITALIAN:
You were lucky. We traded the 3yr on the Italian corporate issuance desk. We used to have to get up at six in the morning, print the paper, make up bullshit, go to work on our dumbest investors, fourteen hours a day, week-in week-out, for 10cents a week, and when we didn’t get any out our boss would thrash us wi' his belt.

SECOND ITALIAN:
Luxury. We used to have to get in the boiler room at six o'clock in the morning, mismark our books, get given in-house balance sheet stuff as Greece went tits up, work twenty hour day, for 2c a month and get told by the sales desk the client needed mid... if we were lucky!

THIRD ITALIAN:
Well, of course, we had it tough. We used to 'ave to get onto issuance desk at twelve o'clock at night and lick investors' arses with tongue. We had no screens, or brokers, worked twenty-four hours a day, got told to fix EURIBOR, and when we got home some German would say something about fiscal discipline.

FOURTH ITALIAN:
Right. I had to get rid of 100 yards of new issuance five minutes after ECB said no help needed and 10yr went through 7%, I had the Finance Minister calling to tell me if I failed I’d be lucky if it was only a horse's head in my bed, I had the US investment banks taking down my trousers and surgically implanting their oversized positions, the CDS desk would be stuffing me, I got no sleep, the tax man took my Ferrari, the ex-Prime Minister took my wife and at the end of the day the Bundesbank would kill us with some stupid statement and dance about on our graves singing Hallelujah.

FIRST ITALIAN:
And you try telling the young of today that 2.71% 10 yr is nothing to worry about ..... they won't believe you.

ALL:
They won't!

A Market Post-mortem and View of the Afterlife.

This is the least 'fundamentals driven' correction we have seen for a while. Are people really expecting a double dip in the US? If not then the talk of 'concerns over growth' are hard to swallow. If we look at real yields they haven't fallen much until recently, unlike prior episodes of growth concerns where there was a more realistic probability of sharp slowdown.

So where did it all start? Perhaps oil is the culprit. Oil & gas are the largest sector in High Yield, (~13%) so the sell off below marginal production costs really put pressure on HY and led to the gap higher in HY spreads. Equities then followed HY. If you are someone who only looks at numbers it may well appear as a growth scare driven sell off as energy and materials are cyclical sectors and t'was they that took the biggest hit. But the other side of the equation is that whilst everyone panics over the energy sector, the rest of the economy benefits as lower oil prices lead to higher real incomes. Manufacturers must be rubbing their hands in glee whilst farmers, if they were to ever express any sort of happiness, would be dancing for joy (let's not forget that farming these days is pretty much a way of turning oil into food via fertilisers, farm machinery and transport). Perhaps the bond market saw this side and didn't really price in much of a slowdown until stocks started tanking.

Another factor is that when global yields moved higher in September, the pension funds that do automatic rebalancing programs may have sold stocks to buy bonds and the real money guys may have ended up selling to short term specs. This rebalancing could have been the reason that yields have been leading price action in stocks by about a month for the past 12 months. As yields have obviously retraced, so maybe that rebalance has been unwound.

We must also note that 30yr US treasury yields are now BELOW when Bernanke uttered the word "taper" and 10yr treasury yields are now less than 10bps above the dividend yield of the S&P. The value proposition for stocks over bonds has been the highest since early 2013. There is no recession risk in the US (stop laughing in the cheap seats) and even though Europe will have a roughly flat / marginally negative real GDP print it’s all priced in now. Europe has barely grown in the last few quarters, so it's not as though there are a lot of excesses that need correcting.

Oil - I strongly believe that oil prices won't stay here for that long. There is some infighting within OPEC regarding ISIS perhaps and oil prices have become a tool both there and in the anti-Russia game. The fact that spec longs in oil futures were also at all time highs going into this surely had a large impact too. With the chatter that $80 is the marginal cost of production for a lot of the shale producers supply should also be slowing soon, although it may take a few months for it to be felt. But my underlying feeling is that a 15% fall in two weeks is in no way substantiated by a change in the fundamental supply and demand of the huge and complex oil market. It was (and is) positional speculative and hedge forced position adjustments and as such is just as likely to move back higher again. Fill your tanks.

Europe - Disaster contagion was in full swing as correlation trades swept through the books and peripheral markets saw spreads to core scream higher again. Once again this can be explained by liquidation of stretched positions. Core/periphery spreads have been a talking point for the past couple of months so were due a creation anyway but coming in the midst of an equity rout the mood appeared to fast morph into one of Euro-panic with dealers reaching for their 2011 Euro-panic gameplay handbooks. Greece stocks down 10% at one point in the day was worse than at any point during their own crisis. But this is not 2011 again and despite Germany sticking to her selfish ways, I doubt the bond vigilantes are going to have much success further than taking the excess out of the recent compressions. Europe may be suffering a growth and deflation problem (actually bond positive) but the chances of default for the likes of Spain and Italy have not dramatically increased over the last week and they are still ultimately enveloped by OMT. This is not 2011 though the bond vigilantes may try to make it look like it.

So, despite all the recent shenanigans, you can probably guess that I'm still bullish risk. The macro backdrop has not changed, but what has changed is positioning. People may just have been over exposed and the price action today is suggestive of that with all the popular trades getting killed - short bonds, long dollar, long stocks, european periphery spreads etc and it was clear that their was real panic in the treasury market today with people capitulating with the net short position that specs have been running for the past 9 months getting unwound.

Where does this lead us? The master plan, after the ‘Bear Signals’ post at the end of September, had been to wait for a typical Sept/Oct sell off/panic to play through psychologically with the probable buy date to be somewhere around the end of October. However after today’s retracement, things look as though they are lining up for a low in risk assets perhaps as soon as next week or perhaps later in the week due to option expiration. I surmise that plenty of short dated options were bought expiring in October when this move began adding to those already bought to hedge against the risk of market volatility due to the end of QE. I would also surmise that most long-term real money will hold onto their long exposure (Larry Fink also saying they have seen no large institutional selling) and just roll the protection out. So the expiry of the October options on Friday may allow volatility to fall as dealers gamma exposure will probably drop measurably. This fall in volatility could itself become a bullish event as it leads further buyers in. Let’s not also forget the point made earlier where the relationship between yields and stocks (whereby yields have been leading by about 1 month) also suggest a low this week.

Finally, there's the time component. It seems that a 'proper' correction needs a minimum amount of time to sufficiently change attitudes, and historically, it's been roughly 4 weeks. This is the 4th week.

And finally finally, I am wondering how much of yesterday's carnage, especially in the less liquid products, can be attributed to new banking regulation. There has long been concern that the regulatory removal of bank proprietary trading positions also removes a buffer of liquidity should things start to collapse. Perhaps that was our first sighting of such an effect.

Fed surprises market with no surprises! (and other musings).

October the 27th is traditionally a good time to buy back September/ October sell offs but the market's volte-face in the light of the Fed minutes has me thinking that the fun and games may be over for now. Which is sort of a shame as we have so many ducks in a row as far as a self-feeding cross market sell off is concerned.

Where I think I have been wrong is just how wrong footed the market has been in their expectation of CB interest rate policy despite my belief that they were some way off course. The post minutes price action has to be the key witness in my case against the wasted man-hours invested in predicting yield curves in the previous post here.

Once again it is absolutely staggering how far a market can oscillate from conviction within the envelope of ‘not sure’. The moves in the curve seen yesterday are causing news headlines along the lines of ‘not this much since the last time’ to pop up in abundance. And did the Fed say that much? Apart from Bloomberg deciding to apply their red line of importance over news headlines in a seemingly arbitrary manner, there was little of great surprise other than what they were saying made sense. The surprise was more that the market was surprised that a major Central Bank is adaptive to circumstance and doesn’t plunge immediately ahead with what the market thinks it ought. Surely watching the European situation has taught us that.

So the response in the market appears to be more of a mean reversion as the oscillators of expectation once again snap back from stretched against the damped line of CB action.

European Growth. German data this week has been a scheisse show and though regional holiday patterns of German car companies can be partly blamed, it is undoubtably the best news that Europe has had for a while. Best as there is nothing better for European unity than Germany suffering great misfortune (well, up to a point and that point normally involving Krupps’ fortune). The FIGS (France takes Portugals place) must be looking up translations for Shadenfreude as they smirk into their wine glasses.

I can hardly see Schaeuble and Weidmann calming their calls against ‘alternative methods’ but their voices may well be muffled by the masters of German industry and with the Fed now openly quoting their concerns about global (read European) growth, Dr Aghi will now have plenty of prompters in the audience at his next performance mouthing his lines to him. So please, JFDI.

UK Lib Dem conference - At what point does the popularity of party become so small that even the role of kingmaker no longer applies? Listening to the UK Lib Dem's conference and you may be fooled into thinking that they will be in a position of power post 2015 and able to enact any of the promises that they are now making. For the record, if I get into power at the next election I will make it compulsory for vehicles travelling at less than the speed limit with more than five vehicles queued up behind to pull over and let them pass. There, as much chance of that as Nick Clegg being PM and I’m not even standing.

Oil - 20% down from July highs (19% in WTI and 24% in Brent) which apart form leaving my fracking stocks, like the gas they seek, three kilometres beneath the surface also means that all the drilling support and tech stocks are getting shellacked. Unfortunately that includes my ‘Graphene is the future’ stocks as graphene is also used to lubricate oil extraction. But there is good news. The energy tax on industry has been lifted by 20%. Manufacturing industry will of course be looking to retain this as additional margin and indeed it may give a fillip to earnings, but the world will cry doom as the deflationary impact hits the CPIs. But this is GOOD deflation and I for one am very grateful for it. Unlike all oil producing countries which of course include the Middle East, Russia and….. Scotland. I haven’t seen any conspiracy theories out there yet saying that collapsing oil prices are a huge manipulation to defeat the enemies of the West but we can’t be far off.

Volatility is back but the lesson of 2014 has been to fade every break out leaving me with the evil thought that the cruelest blow to the markets from here to year end would be a collapse in volatility. The uber popular USD bull story has seen some serious retracement, especially in the usdjpy and the usdjpy/nikkei spread where nikkei in usd terms has take a bath.

Japan appears to be in a bit of a quandary. A key pillar of driving Abenomics has been the inflationary impact of a weaker jpy and the relative spur to buy stuff now rather than later. But if the weakening currency is now of concern we are at risk of Abe issuing JPY and the BOJ buying them all back in exchange for USDs which effectively sees Japan doing US QE !

Perhaps instead ( and here is a cunning plan) they could issue JPY and then buy them against Euros, in effect doing Draghi’s QE job for him to the delight of everyone apart from Shaeuble and Weidmann who would have no control over it. Just a thought.

PIMCO's - Redemption Song

PIMCO's redemption song




Of positions, yes, they rob I;
Sell I to the merchant banks,
Minutes after they took I
I still hit their bottomless bid.
But my hand was made wrong
By the 'and of Gross Almighty.
We forward this liquidation
Dispondently.

Won't you help to sell
All these bonds, don't need 'em -
Sell everything I have:
Redemption sell;
Redemption sell.

Emancipate ourselves from mental slavery;
Now that ourselves have freer minds.
Have the fear of Bill no longer
'Cause he's gone and it's about time.
But how long shall he kill our profit
While we stand aside and look? Ooh!
Some say we should sit on it:
But we've got to unwind de book.

Won't you help to sell
All these bonds, don't need 'em-
Sell everything I have:
Redemption sell
Redemption sell
Redemption sell.

It's all going Pete Tong

For Non UK reader's 'going Pete Tong' is cockney rhyming slang for 'going wrong' (though Mr Tong is an awesome DJ too). I refer to the markets but first some other thoughts

Russia has a growing binary function to it which supersedes all analysis of cash flows, assets, returns etc. Will you be able to get your money out once you are in? Creeping Western shut down and Russian stubbornness in the face of 'imperialist' sanctions just sees Russia growing its bonds with China, as FDI figures are showing that EUR/US money is being replaced from the east, leaving the west with the choice of backing down or squeezing the screw tighter (

The Bear Signals are Aligning.

A very quick look at concerns that are building rapidly.

Background :-

Europe - Who is in charge?
Russia vs RoW - Slow escalation.
UK - Fracturing political structure.
Middle East - Deja Vu
Hong Kong - Riots with many remembering/frightened of a Tianenmen Square
DM Economies - Rolling over.

Price action :-

High Yield prices yukky.
Small stocks leading the main indices lower.
UK London house prices off.
UK stock shocks increasing (Tesco, Balfour Beatty) - Leveraged expectations being caught out.
Usual EM stress points breaking (watching Turkey).
DM and EM both moving lower (haven’t seen that in a while).
Corporate bond market liquidity a real worry.
IPO launches rapidly going negative.
Commodity prices still falling.
NZD melt down - separate issue but pretty sure John Key knows the background carry concerns so is just helping the NZD on its natural way
European markets opening down despite late NY rally

This is beginning to smell like a typical all round September/October risk dump. So this permagoldbear even thinks he'll buy gold and JPY - and that's saying something!

More Golf Balls

The Ryder Cup is back and once again has me wondering what golf is all about. Don’t get me wrong, I have been a member of a golf club myself and have wandered the fairways only to come off the other end with regular feelings of despondency only rarely spiked with ones of satisfaction. But that satisfaction is itself questioned as my achievement has hardly been through the achievement of a goal I have set myself, but the achievement of a goal set by others - those that set the rules in the first place. Golf is like a drug, it messes you up, wastes hours, turns your brain to mush but now again teases you with enough of a high to want to have a another go at it.

At the risk (no, i mean intention) of upsetting the purist it is time that the rules of the Royal and Ancient are dramatically updated to produce a sport which is not only more fun to play but also to watch as it is currently only one level up from watching snooker in black and white.

There appears to be some irony in what golf clubs have become. Despite their throwbacks to grand upper-class institutions, with their interior design strongly nodding towards Victorian hunting lodges (even if they are located in 1980s brick supermarket style buildings) and with their inane rules that challenge those of the most peculiar of English public schools, most of the cars in the carparks around here are taxis. The drivers are not delivering, they are playing.

With the number of players still falling (one of our local ones has closed down and returned to arable land) it is probably time to bust down the doors of the establishment and introduce our own new order and to do so I will present them in the format of my own dream golf club -

-----------

Welcome to 'Polemic Dales'. Golfing as it should be. 

Dress code. No garb allowed bearing diamonds, checks or the words Teitlist or Ping. In fact no golf related words allowed at all. Any other garb allowed.

The Rules -

Rule 1 - No w@nkers.
Rule 2 - Only 7 rules.
Rule 3 - Bad shots to be greeted with howls of derision from fellow players rather than smug suggestions for improvement or sympathetic hissed intakes of breath.
Rule 4 - No out of bounds.
Rule 5 - Overtaking allowed, overtaken party to keep clear and it is up to them if they wish to take cover or not.
Rule 6 - Use of trackable balls (lent out free at reception) compulsory.
Rule 7 - Any type of club allowed, even ones you have invented (including snooker cues for the greens).

New game play variants -

Foot golf - We’ve been beaten to it already see here.
Speed golf - It's not the number of shots that count but the time you can complete all holes in. Can be expanded to take in cycle-golf.
Limited shot golf - You only have as many shots as the par for the course. Your brass plaque is pinned in the ground at the furthest point reached and is only moved on once you improve upon it.
Only par golf - You can move on to the next hole if you parred the previous one, otherwise it's back to the beginning after a 20 minute time out in the bar.  We would suggest each course has at least ten first holes. The 18th hole will have a rarely used champagne bar off the green.
Cross country pub to pub golf - Having tried this I can only say that it is brilliant.
Throwing golf - Not a master of the club? You can throw the ball or gently bowl it on the greens.
Mortar golf - Golf ball diameter small mortars are used to propel the balls. It is up to players to set the trajectory and chose the size of the mortar charge.
Drone ball - For the young tech-savvy, UAVs (without camera aid) are used to fly and drop the ball. The operator can only stand at the point of ball pick up and use line of site.

The Committee -

The following will be excluded. Middle ranking accounts managers with a penchant for petty rules. Retired company directors. Anyone who drives a Lexus or  Jaguar, or who's last holiday was a cruise.

Club House -

No tartan to be visible, no green in the carpets, no wood cladding, no dress code. Women not only allowed but compulsory. Michelin restaurant attached onsite at one end, BBQ grill the other. Large night club attached with top DJs in the evening (these places are miles from anywhere built up so no noise complaint problems). Maitre’d who is really good at his job, knows all members and introduces them to each other so they get to know each other. Staff to be polite and helpful and not tell stories about their time in the war/driving coaches/playing golf/running a bed and breakfast. Free shuttle bus to take members home to avoid drink-driving problem.

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

Of course the club would welcome any other fun suggestions. If your response to the above is one of disgust and a  "Sorry sir, but it's tradition" - Well so was slavery, but we managed to change that with the times.

The iPhone6 Songs

The Apple woes don't seem to be letting up. I was just walking past an Apple store and I'm sure I heard this coming from the iPhone6 Stand.

(Apologies to Simple Minds for obliterating one of their best ever songs)




The iPhone6 Song -


Hey, hey, hey, hey
Ooh, oh

Won't you come and buy me?
I’m alone in the store you know it baby
I’ll sell you my dreams
Though I’m becoming a mess inside and out

Though IOS8 may turn your screen dark
Think of the upgrades we're working on
But slow change may pull us apart
When the light goes out in your heart, baby

Don't you forget about me
Don't, don't, don't, don't
Don't you forget about me

Don’t pick Samsung above me.
Look my way, please love me
But trust keeps falling, trust keeps falling
Down, down, down

Will you recognize me?
Call my name or walk on by
My stock keeps falling, stock keeps falling
Down, down, down, down

Hey, hey, hey, hey
Ooh, oh

Don't you try to pretend
I’m not the best, I'll win in the end
I'll try to stay flat and connect to your networks
Vanity and security.

Don't you forget about me
I’m stealing your data, you know it baby
Repair stores going to take me apart
Put my screen back together at last, baby

Don't you forget about me
Don't, don't, don't, don't
Don't you forget about me

As you walk on by
Will you call my name?
As you walk on by
Will you call my name?
When you walk away

Or will you walk away?
Will you walk on by?
Come on, call my name
Will you call my name?

iPhone, blah blah blah blah.
When you walk on by
And forget my name


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

And to follow that, with gratitude to commenter 'C', The Outsiders and American Breed, I have lifted this from below -

Bend me, shape me.



You are all the mobile I need
And baby you know it
(Know it, know it, know it)
You can make this beggar a king
A clown or a poet
(Poet, poet, poet)
I'll give you all that I own
You got me standing in line
Out in the cold
Pay me some mind

Bend me, shape me
Anyway you want me
Long as you milk me
It's all right

Bend me, shape me
Anyway you want me
You got the power to turn off the light

Everybody tells me I'm wrong
To want you so badly
(Badly, badly, badly)
But there's a force driving me on
I follow it gladly
(Gladly, gladly, gladly)
So let them laugh I don't care
'Cause I got nothing to hide
All that I want is you by my side

Bend me, shape me
Anyway you want me
Long as you milk me
It's all right

Bend me, shape me
Anyway you want me
You got the power
To turn off the light

Yeah, bend me, shape me
Anyway you want me
Long as you milk me
It's all right

Bend me, shape me
Anyway you want me
You got the power
To turn off the light

Noise over Substance

Is it possible to over-analyse a market? What is the benefit of dissecting every nuance of every flutter? I ask because the number of man-hours consumed in watching, interpreting and (let’s be honest) guessing what the shape of the forward yield curves in the major economies of this world are going to be is staggeringly, STAGGERINGLY large. And to what use?

The Fed signalled over a year ago that the taps were going to be slowly turned off when it came to QE and since that point the extrapolationistas have been waving their rulers or, in the case of yield curve analysts, their bendy rulers and prognosticating in ways that at first appear to be ones of remarkable accuracy, but soon resemble spurious accuracy and finally become absurd inaccuracy.

The same process is reflected in the trades that are discussed, spurred on by the apparent unwritten rule in finance that the more complex your trade structure the cleverer you must be. A whiff of a word from an official source and rather than buying or selling a basic it’s a complex leg structure of buying barbells, butterflies, condors, seagulls and any other flying creature that you can use to show your prowess at trade structuring in order to climb up the Candy Crush like levels of peer recognition to reach the accolade of 7th dan, black belt yield curve guru.

The level of gravitas with which complex curve structures are discussed, all argued and tweaked to the nth level of basis point precision, is in most cases farcical as the next word from an official normally creates a blast of noise so great, the gossamer tuned trade is atomised. At which point the original complexity and analysis can be seen to have been as worthwhile as old men in a bar discussing their betting 4way-forecasters on the times the first goals are going to be scored in the 2022 World Cup quarterfinals.

A nice platform on which to display fancy analytical plumage but less useful than a dead duck (you can eat a dead duck).


----
Post script -
I have just read Mark Dow's post 'Of Trends, Yields and Metals' which is a great read and sort of argues the same, but by stressing the importance of the large trend rather than my argument against the value of spurious accuracy in the micro.

8th Oct - update
The actions of the markets today in response to the Fed minutes is surely the strongest evidence to support the above postulation.

15th Oct - update
I call on today as the key witness in the case against the man-hours wasted in over analysing the Fed. Today's carnage in rates markets have been the biggest and most painful in years. And the Fed didn't say a word. Today wasn't just noise, it was exploding ear drums.

Unconventional Methods

Lots has been spoken about the possibility of the ECB using 'unconventional methods'. It would be a delight to see some really unconventional methods deployed, so to help out here are some suggestions.

-----

Replace Draghi with Alex Salmond at the ECB meeting Questions and Answers. Who needs detail when you have conviction? 

Set up an ECB youtube channel explaining how to spend Euros in shops, modelled on daytime TV shopping channels.

Introduce thumbscrews and the iron maiden as regulatory punishments for those who don’t lend. 

Create a subterranean secret society of ECB gnomes who tunnel under banks and fill their vaults with Euro notes whilst leaving their balance sheets untouched

Create an Ice Bucket Challenge equivalent where all vendors of goods and services are challenged to film themselves increasing their prices and then give €10 to the 'Bide-a-wee Home for Old Central Bankers’. They then have to nominate others. 

Build a time-freeze ray and fire it at Germany and while they are frozen go wild with money printing and inflation creation meanwhile running around Germany changing all the clocks back to 1923 and leaving wheelbarrows in every bank. Then turn the ray off. 

Announce that a large Meteorite is going to destroy the world and that Europeans only have 21 day in which to spend their money so they had better get on with it. 

Appoint Abe as head of ECB and wait quite a long time. 

Rebrand the ECB as the iECB, People will mistake the 'i=ineffectual' for a famous brand and believe everything they say. 

Rebrand all european goods iPhone6xxxxxx  e.g. the Citroen iPhone6DX hatchback. Judging by last week's i-mania sales should soar. 

Make Bund prices 50% of the CPI sample basket. 

Make Robert Mugabe head of the ECB calling upon his success in creating Zimbabwean hyperinflation. 

Call in Native Americans to do an inflation dance. 

Reorganise Europe. Sell off France, privatise Spain and Italy, nationalise Germany, buy Switzerland, put Greece on six months performance watch, promote Poland, retire off Luxembourg  and make Belgium redundant. 

Buy the company that owns the Oxford English Dictionary and redefine deflation as inflation and recession as growth. 

----

Hope that helps!

This Week in Pictures

Scotland

FOMC

European Economy and the TLTRO 

Notes from the Greek Islands.

Today is our first day home from spending a delightful two weeks sailing ourselves around the Greek Islands. Sailing is imbued with many charms so I have embarked upon some home improvements to continue our enjoyment of them all year round.

I’ve left the tap running in the bathroom above my bedroom to provide that leaky hatch style Chinese water torture through the night, I’ve replaced the mattresses with yoga mats and placed them in a Sauna, I’ve set up nautical wind chimes in my and my neighbours' gardens consisting of 200 ft aluminium poles and ‘just not tight enough’ ropes attached, I’ve screwed random, not quite visible, blocks of toe-stubbing wood and metal to the floor throughout the house and I’ve taken a dolls-house toilet and fixed it into the shower cubicle, together with a bin of used toilet paper. I’ve placed a bucket of rancid yoghurty water in the fridge and thrown all the fridge contents into it, I've fixed a random time switch to the freezer power socket, I’ve unified the function of my washing basket and my wardrobe, I’ve tied every electrical wire we own into a huge gordian knot, I’ve relaid the drains using one inch diameter hose passing through a plastic matchbox on the way to our ornamental fishpond, I’ve put a wasp nest in the dining room and finally I’ve just managed to drag the car onto the roof. There, it’s just like being onboard again!

A few years ago I wrote "Notes from some small islands” whilst sailing around the Cyclades in the Aegean and most of the theme was based upon a general feeling of shock that a country that at the time was in abject financial crisis still carried on as if it wasn’t. But three years on and two trips later to the less bleak and more wooded islands of Homer’s Ionian Sea it is probably time to rebalance the view and add to the notes.

The first impression is that Greece is resigned to its lot and is just getting on with it. As a shop keeper told me "The Greek people are not poor my friend, just Greece”. Which at first had me thinking that the old game of tax avoidance hadn’t been fully addressed, but there were enough signs elsewhere that things had improved with regard to State collection of their kilo of flesh. Credit card machines are now widespread in shops and Tavernas. A mixed blessing as the convenience of presenting a piece of plastic is countered by the inconvenience of a large bill two weeks later in the midst of the post holiday blues. But for the restauranteur he has an audit trail for the taxman to follow and now that they are all being chased, there is less reason not to accept cards. One of the kids tried to haggle a trinket down on price and was greeted with a repost of the time “No way I can lower, I now have to pay 20% tax on that!” Though the cynic in me would suggest that blaming the taxman for high prices is an easy play in the game of haggling.

The level of tourism was noticeably higher than recent years, superyachts were brimming the bays of Fiskardo and Vathy and ferries were disgorging foreign day-trippers from large resorts yet the locals said the voices of foreigners belied the fact that few Greek nationals were contributing, as there is a noticeable slide in local tourists.

I am glad to report that Greek Economics is alive and well. Coffee priced at €3 for the smallest of cups in the shabbiest of cafe’s is still Alpine. Yet for the same price around the corner you can get two Gyros of beautifully roasted pork, salad and tzatziki in a homemade pitta for €1.50 each. (Gyros soon became our base unit of pricing and we suggest the Euro is pegged to it). If Greece wants to get back on a decent footing it only has to come over to the UK and peddle those Gyros beauties in place of the usual giant spam kebab-maggots on a stick we get here.

It still strikes me as odd that a small town can have so many restaurants all lined up next to each other selling exactly the same things. Walking along a quay reminded me of that old Goldfish Joke “Nice castle…Nice castle… Nice Castle”. Only in this case insert either ‘Taverna’ or 'expensive fish’. To be honest it baffles me how Brits can rave about a small grilled farmed sea bass costing 20 Gyros when the fish at home is so much better. I have to report that on the positive side a few Italian restaurants are sneaking in and when found were pounced upon as there is only so much Feta a man can take.

There are of course still glaring oddities about the infrastructure. If they spent as much money and initiative on the plumbing system as they have on the remote infra-red, hand approaching detection, lid opening and closing technology they have applied to the bins that still have to be used for used toilet paper, then the bins themselves would be mercifully redundant. It is strange too that whilst suffering the plumbing pleasures and the R2D2 bins in the most remote island locations, one can be getting high speed wifi that puts the UK services to shame.

Despite the odd minor exception, I felt that the old charms of Greece are returning. It may have been that Greece has dropped off the financial radar for so long that my impressions have mellowed but perhaps the crisis, having dashed the hubris and greed that was tainting the Greek experience, has moved through the stages of grief from denial, anger, bargaining and depression and reached the point of acceptance. As with the weather, the angry heat of summer has given way to a cooler relaxed evening.

Things are changing for the better and the irony of spotting a German street hawker was much enjoyed.

Thank you Greece, I will be back soon.

FX Employee Survey - How's life in the trenches?

I thought it time to give my old profession a chance to air how they feel about the state of the jobs market in sell-side FX these days. We have all had to fill in work related satisfaction surveys but we all also knew that they were not as anonymous as they promised (how else would HR know to send you an email reminding you that you haven't filled it in). This IS completely anonymous, no log-ins etc. which actually makes it less reliable as anyone could fill it in. But I trust folks to be honest.


I have set this up so everyone can see the collated results/answers as they come in, so the benefit of doing it will be to see those results. Please pass on to anyone in the industry so we can get a representative feel of what the mood is like.



The analysis of the responses IS HERE

Innocent Aid - Secured.

If I were Putin I‘d drive a huge convoy of aid trucks around the country gathering, like the Pied Piper, moral support along the way. The longer they parade, the higher the status they gain as humanitarian and morally good. They would be packed with bona fide aid materials, devoid of any military equipment (as this is truly aid) and the nations of the world would be allowed to fully inspect them to rubber stamp the validity of this humanitarian action.

Then I’d drive them into Ukraine to provide succour for the suffering innocents. However to protect this saintly mission security support would naturally have to be provided (as we can all see, this is a very violent environment) to protect not only the aid trucks but also those receiving it. Perhaps a tank or two, or three per truck. Well, you can never be too safe.

An Aid truck and its logistical support

I then split up the convoy deploying individual trucks of aid, together with their own protective force, to wherever fighting is most intense as obviously that is where aid is most needed. Once there, the truck’s escort of security will do its best to restore peace so that aid can be distributed. Obligingly the rebel side would desist from action leaving the only potential aggressor as Ukrainian forces who now have the choice of desisting or carrying on the aggression only to be countered by the Aid trucks security assistance. If the Ukrainian forces desist then naturally it would make sense for the aid trucks to push on to extend their aid services to others, Any aggression against the aid truck being swiftly dealt with by its protective swarm of T-90 battle tanks and air cover. Of course any resulting casualties on the Ukrainian side would need further aid thus justifying a further push west.

If the aid trucks were to stumble in their purpose then they would swiftly be reinforced by the Airborn Special Nun Service meting out their own form of moral rectitude.

Who could possibly morally deny this humanitarian aid to those who deserve it?

The Day the Earth Stood Still

I saw the remake of ‘The Day the Earth Stood Still’ on TV over the weekend. I don’t know why, but it was just on and I got hooked working out if Mr Keanu Alien Reeves was going to punish the human population for messing up the planet by wiping them out or let them off because a single mum and her twatish kid had shown him that humanity is not all bad.

Unfortunately he let the human race off with a second chance by effectively confiscating their mobile phones, or rather making all electrical things fail. A trick I have tried myself to the extent of putting the family router in the boot of the car and driving to work with it in an attempt to leave the holidaying and fighting kids looking for non-internet activities to entertain themselves whilst I was at work far enough away not to hear their protests. Unfortunately their mother could and I had to do the cowardly thing of pleading that I had indeed removed it temporarily and couldn’t remember where it was and perhaps the kids could play ‘seek the router’ for the rest of the day and no, there was no way I would have maliciously driven off with it leaving my dearest in the lurch with the howling horrors.

So the relevance of this to markets? Little apart from the way that Keanu Alien was planning the demise of the world by unleashing a plague of micro-insectbot things that consumed everything in their path in very tiny increments but very fast. A bit like sand blasting. Which is, in my jaundiced eyes, pretty much what we have with the markets. Lots and lots of bad things that are overloading the immune system and causing us to go to bed with some ibuprofen, hide under the duvet and hope we feel better some day rather than being devoured and recycled by some horrible plague of bad news.

It"s all very 1970s -

Ebola - It all came rushing back when the dreaded word Ebola hit the screens this year. I am old enough to remember it when it first appeared when I was a child in 1976, watching the news and hearing about this incurable dreadful unstoppable disease. Though my mother, as a very sensible doctor, assured me that its very lethality was its weakness, it gave me nightmares for weeks. Yet Ebola did eventually creep back into its darkest african cave and I though that was that. But here it is again and this time it’s getting out. I hate to say this, but my only recent experience of epidemics has been playing the ‘Plague’ game on my phone. Which all seemed great fun at the time but I predict its sales have crashed over the last month as it is now in the least possible taste. But I am hoping, probably at complacent levels, that the latest bout of Ebola burns itself out again.

Middle East- The Middle East and oil shock of the 1970s was a fundamental game changer to the nature of energy supplies and a jolt that showed that country's economies could not be considered nice little experiments for the incumbent political party to inflict upon their guinea pig populations. Globalisation was real and had to be considered. - FRANCE! FRANCE! FRANCE! CAN YOU HEAR ME FRANCE? This is your problem NOW!

But war in the Middle East is back again. It never seems to die but this time it is unpredictable and uncontrollable because, just like those microbots in the film, it is a swarm of killers only programmed to do one thing. Kill anyone who isn’t them. Unfortunately they don’t have a Keirnu Alien to switch them off.

The Gaza situation is not only dividing the Middle East it is dividing Western nations. As the multi-ethnicity of the world's nations has expanded there is no longer that national feeling of them and us, Okokok American readers aside, where of course 'them and us' is at the bedrock of rallying calls at every level of life, sportsfield, corporate identity, investment bank slavery and finally foreign policy. But European nations are seeing local protests as their populations divide along internal lines that simply wouldn’t have been there a hundred years ago. The dangers of the Middle East are apparent now on city streets across Europe and it leaves governments in a quandary as to how to handle it with them ending up having their decisions pilloried by a good chunk of the population whatever they do. Western governments are doing their best not to get dragged on to a side and if they do, they have to be sure that the enemy they chose is definitely the enemy in most peoples eyes and that the supported side is not as bad.

Hypocrisy is evident everywhere as the the triggers for support come only when humanitarian thresholds are breached - when things get so bad something has to be done. Gaza is a case in point, the fleeing Christians in Iraq another. This sort of thing has been going on at a smaller scale for years but it is now judged too bad to be allowed to continue. But to hear Obama say “The US can’t stand idly by when there is this level of human suffering' does lead one to ask what happened or rather didn't happen, with Rwanda, Darfur and the original Syrian refugee camps which incubated the militant hordes we now see streaming into Iraq.

We could look at the this binary response by governments to vicious uprisings a bit like binary options. Nothing .. nothing .. nothing .. nothing Kaboom, the trigger being its own public’s horrors at what they see (Rwanda by the way wasn’t that visible, it was only when journalists went in afterwards that the true horror was seen. Pre-mobile phone camera apps plus poverty I suppose). But the binary function is a game that all the problem factions play to. Niggle away, spread the network, infiltrate, manipulate and do horrendous things on a big enough scale to take power but small enough not to trigger a reaction.

However the latest horrors in the Middle East appear to be trying something new. Being so absolutely barbaric that they cannot be ignored and appear to actively want the morals in the west to be so shocked that the west is sucked in, at which point, i assume, they hope that those nations getting involved are split internally about what to do.

US policy so far on every level has appeared to be ‘let them fight amongst themselves’ and whilst they have stopped short of fomenting war, there has been very little action in the way of progressing peace. Either in the Middle East or with the waking Bear.

Let me ask one last question before we lead the Middle East. What is the difference between Tony Blair as Middle East envoy and a banker? A banker loses their job and hands back their pay and is never allowed to work in that field again when they leave the place in ruins.

The Cold War - another one of the1970’s nightmares. It is strange to think that there is a whole generation who have no recollection of it and haven’t had the nightmares that I did involving mushroom clouds on the horizon, lost parents and all the other horrors of childhood terror.

To be honest I’m a bit annoyed at myself. After raising flags in this very space as to my concerns over Russian policy and how it wasn’t going to stop at Crimea, I let myself get reassured by (surprisingly mostly American) friends that the Russian economy was in a mess and there was no way Russia could afford a spat with the West as they need the energy revenues. As it is this spat is more like a slow insertion of hot steel than a slap in the face followed by a swift make-up. Who is Russia’s new energy friend? Why of course the Chinese, never fussy about the morals or methods of the supply of their raw ingredients/materials (see Africa). China meanwhile is taking the opportunity to test their boundaries in the South China Sea.

It's all very 1970s out there and all we need to complete the picture is a hefty dose of inflation and a few pares of flared trousers. Perhaps if we follow this into the 80s the next thing we would see is a rise of a radical right (Thatcher and Reagan) as a reaction to ineffectual social and international policy. Errrr.. hang on.

So where are we? It’s the 1970s, we have a swarm of microbots devouring the middle east and we have a swarm of bad news taking over the markets. None of it is big enough to have triggered a full scale rout, but each little nibble undermines the asset next to it and we see a self feeding sell off in risk.

Yet here is where I digress from all the points above.

The junk bond market may be looking as shaky as anything and Bund yields may be doing a Baumgarten (the jumping out of a ballon in space man) and equities may be overpriced and the Middle East may be blowing up and the Cold War may be returning and religious based riots may erupt on the streets of Europe and Portuguese bankers may continue to lie through their teeth and UK house prices may be going to crash and the US may be about to raise rates and Ebola may be going epidemic. But, but, but I think we've had the panic. That's it for now and..

I'm still long equities.

Russian Sanctions - Part II

Putin laments his last Big Mac and discusses the future production of the BigPutin.

So the EU have unleashed the big sanction guns and though they are treading a fine line between moral rectitude and punching themselves in the face, it is a big step forward from the UK's Nick Clegg wanting them removed as hosts of a future football competition. I have long held the opinion that 'one should only worry about things one can change', but with Nick Clegg that can be extended to 'only worry about people who can change things'. So he can be ignored.

Sanctions normally spawn a rash of media stories of unrighteous suffering that some may incur but in general we could be pretty safe in assuming that sanctions could get pretty sneaky and there are bound to be some major unforeseen consequences. Here are some suggestions or predictions of future silly actions and their consequences.


Russia bans the import of artisan goods from London’s Borough Market causing prices to fall from 'eye watering' to 'expensive'.

Russia and France ban Russian superyachts from Monaco both thinking wrongly that the other will suffer most - Monaco goes downmarket and looks to Magaluf for guidance.

London Borough of Chelsea bans Russian hookers - Lots of wives are surprised to see their husbands home early from work.

Brussels follows its solar panel tariff idea and places a minimum charge on Russian hookers of $5000 - The clientele of Porto Banus moves even more upmarket in wealth but even more downmarket in taste.

Russia bans Russians from working on Investment Bank Emerging Market desks - Mass confusion erupts trying to work out what has gone on in their books causing more regulatory fines to the glee of western governments.

The French sue US banks who have Russian quants working for them (most of them) for $10bio each - Well there has to be some retribution somewhere.

US closes all McDonalds in Russia but dangles Big Macs teasingly from US embassy windows - The world sees the introduction of the world's largest yet most inefficient and unwieldy burger - The BigPutin

Russia bans export of all website software created in Russia under white-labeling to rip-off UK design agencies - 404 errors appear on most advertising agency websites and there is a scramble for 'html for dummies' books.

VW remotely reprogram all Russian sold Audi and VW sat-navs to display an erect middle finger - Lots of Russians misinterpret this as a signal to drive straight on and accidentally drive into Ukraine causing the West to believe an invasion is taking place.

Russia sells all Russian owned UK property simultaneously - Half of the UK population cheer, the other half cry.

Russia market Chernobyl (in Ukraine and so not sanctioned) as a Centre Parcs alternative, at 1% of the price, to low IQ gullible Brits causing all British watchdog bodies, holiday regulators and personal litigation firms to blow up due to huge apoplectic overload.

The UK's Vince Cable bans all companies ending in -ski crippling the winter sport industry.

Courchavel in the French Alps declares independence from the EU and instantly becomes the world's richest nation.

US ban Sikorsky helicopters forgetting an important point.

UK bans supplying Moscow arms - The Moscow Arms pub in London runs out supplies and has to close.

Yellen Yell to Sell

As we teeter in the Bradley Sideorgraph market turn period, Yellen's yell to sell has been joined by an upswing in Russia/ Ukraine hostilities, together with further US sanctions against Russian companies, Portuguese banks and the usual concerns of overvaluation that Yellen has only added voice to.

Yet Yellen's comments were particularly aimed at the tech and biotech sector, warning that P/E levels around 100 are risky. Too right they are, but raising interest rates by a percent or two is going to have minimal impact on these stocks as the reasons folks buy them at stratospheric P/Es are based upon hope about the future and dreams of rapid profits. If it was about interest rates these sort of stocks wouldn't have even got through IPO.

To that extent Yellen's concerns are generic and are not under the control of the Fed. Raising interest rates doesn't stop people buying lottery tickets.

One comparison that is being made is that between Yellen's latest comment and Greenspan's "irrational exuberance" speech of Dec '96.

The first thing to note is it took another three years of irrational stock exuberance before it all came tumbling down in March 2000. But it was different then wasn't it? Greenspan cut interest rates in the intervening period rather than raising them. As my old friend Macro Man points out, we now have a young generation of traders who have never experienced rising interest rates and what it does to market's so they will be in for a shock.

But that new generation has also be conditioned by tail risk. Like young lads sent to the front, they are all shell shocked and nervous as hell having been led into battle and taught by, tail risk glory hunters who made their killing in the Global Financial Crapout and subsequent Euro campaigns. They are programmed to look for tail risk. The condition they are not programmed for is irrational exuberance.

Though BAML have issued their Fund manager survey ( see a great run through here on GlobalMacroTrading) I guess what we need is data on how leveraged markets are in long equity positions vs 1999 (any help appreciated). It's leverage that kills and I don't believe anyone is mortgaging their house to buy stocks just yet, more likely the reverse - they are selling their stocks to buy a house.