Tuesday, 26 July 2016

Wrong Wrong Wrong


If there has been one party worse at forecasting rates than central banks it has been central bank watchers, actually we should add the markets though I would put the markets above economists in their forecasting ability. The winning trade for the past 18 months, longer in the case of the Fed, has been to fade expectation into rate announcements. 

Last BoE - Wrong. 
Last ECB - Wrong. 
Last few Feds re-direction of guidance (hawkish vs dovish) - Wrong. 
Last 2 BoJs - Wrong.

Even the Brexit outcome - Wrong. 
And the saddest forecast I think will be wrong - Trump will not be president. 

And while we are on wrong ‘uns -

China to kill the global economy in 2015 - Wrong. 
Greece to kill Europe - Wrong.
Deutsche Bank to sink Europe - Wrong.
Italian Banks (a perennial weed in the garden of economic disaster) to screw Europe - Wrong. 
Emerging market debt to screw the world - Wrong. 
Oil related High Yield to screw US markets - Wrong.
US stock markets collapse due to earnings - Wrong (new highs). 
Ukraine, remember Ukraine? No? Neither does the market.

Okokokok.. so maybe some of them WILL be right, one day, but if you count up the amount lost by 'five minute macro' on all of the above, you have to be in awe of their earning power to subsidise those losses. 

So why have they all been wrong? Basically for a couple of reasons

First reason - The power of negative interest rates has twisted economic behavior in ways that the textbooks couldn't predict. Putting a minus sign in the equations doesn't mean that behaviour does what you think. Elasticity and substitution, the two biggest Econ 1.0.1. fudge-factors, have had to be employed dramatically to explain why things aren't doing what they should do. The numbers head into another dimension, much as i, the square root of -1, invokes in maths. In economics, we head off in a direction that economists really aren't very good at predicting which is the ....

Second reason. Politics. When folk get annoyed enough about their standard of life they bypass economics and instead change the governing rules. If you change the rules of how business is done it can swamp any monetary inputs. Rich mill owner? Monetary economics really don't matter much if your workers put you in prison, steal half of your mill and smash up the rest. Political change is happening faster than anything monetary policy will be able to control. Rules will change and the allocation of wealth is not far from being decided by vote rather than the evolution of business. 

Economists are rubbish at predicting the rule changes. Even if they all think they should set the rules, 

And finally, as for the whole idea of printing money, it's amazing what you can do with a printing press. Caxton (the printer) should be given a posthumous Nobel prize for peace, economics (yeah, I  know technically there isn’t one) and physics for overcoming the first law of thermodynamics by proving perpetual motion can actually exist. Even if it is by monetarist example. 

Tuesday, 19 July 2016

The Turkey Quiz

If you were a British tourist about to go on holiday to Turkey would you

- Go anyway, you owe it to the kids and the beaches should be less busy.
- Don’t go and blame Brexit as GBP/TRY is still lower than it was before Brexit.
- Tell all your friends you are going to Turkey but actually go to Greece.
- Pack camouflage towels.
- Still be paying €3 for a tiny coffee on the seafront.

If you were Jean-Claude Juncker would you be

- Expressing concern over the turn of events in Turkey
- Making sure that a meeting was scheduled for the Commission deputies to table a feasibility study into a further meeting for the Commission in 2020 to discuss the potential impact of the recent events in Turkey.
- Examining the latest terms from Mr. Erdogan with respect to limiting the flow of refugees through Turkey.
- Hoping that nothing blows up in Turkey until August 1st, when you will happily be away for a month somewhere in the South of France.
- Threatening Turkey with non-membership of the EU if they don’t comply with the EU directive on effecting autocratic states.
- Taking keen notes as Erdogan seems to have nailed the transition from democracy to autocracy that you've been so yearning for. Genius.

If you were Frau Merkel would you

- Be staying very very quiet.
- Threaten Turkey with no EU membership if it reintroduces capital punishment, even though you made it clear to the British during Brexit that Turkish EU membership would never happen so please don’t consider it as an issue.
- Be secretly hoping that Turkey opens the flood gates to immigrants because despite the populace's protests, immigration may be the answer to Germany's demographic problem.
- Be building another wall. But this time around the whole country.

If you were a Human Resources consultant would you be

- Wishing you'd got that Turkish contract.
- Wishing you'd got that Turkish contract.
- Wishing you'd got that Turkish contract.
- Arrrgghhhhhhhhhhhhh!

If you were a cafe owner in Bodrum would you

- Reprice all your menus down because the fall in tourism means you need to attract more customers.
- Borrow from Greek economics and double your prices because to make the same money from half the customers you need to.
- Reprice your menus up due to the inflationary effect of a falling Lira
- Continue to charge in Euros as you always have. A small coffee remaining resolutely at €3, because that’s just the way of the world.

If you were the Governor of the Greek island of Kos would you

- Start an import business taking advantage of the falling prices 2.5 miles away in Turkey.
- Sound the alarm as 14 Turkish naval vessels bore down on your island
- Call your cousin in Athens and ask him for the market price on the 14 second-hand naval vessels that have just surrendered to you and are cluttering up your harbour restricting your import business.
- Pack your bags and head for your mother’s place in the Pindus mountains as you are far too close for comfort.

If you were Mr. Obama would you

- Be on the Bat-Phone to Mr. Erdogan personally offering him your every support, including water cannon if he was short of them.
- Be expressing your utmost support for those who support democracy, but not mentioning any names in case you are held to them.
- Be reclassifying one building in Pennsylvania, containing a certain person, as Turkish territory but restricting all access to it?
- Hoping it all goes to hell in a hand basket but not until you hand over the reins to the next poor mug incumbent. By God, both of them deserve it.
- Threatening to expel Turkey from NATO

If you were Mr. Putin would you be

- Praying for Turkey to be expelled from NATO
- Expressing your wish for stability in the region and the continuation of democracy in the country.
- Working out how the changes in Turkey would affect your humanitarian work in Syria
- Skyping your new best friend in Ankara.
- Google map searching suitable sites for your next mega-villas on the Datca peninsular.
- Falling about laughing, whilst pressing the GO button on your ‘Turkey 5 year plan’ control panel.

If you were a US investor in the stock markets would you

- Be concerned over earnings data about to unfold over the next few weeks.
- Be watching the Trump circus and wondering if it will effect Fed policy
- Be looking at the trend lines and buying more.
- Have forgotten every reason you had for not buying stocks when they were 20% cheaper.
- Be 25yrs old and never needing a job as this day trading, long only, is easy.
- Be asking what all this Turkey nonsense is about when it isn’t even November.

Monday, 18 July 2016

Turkey. Markets think it’s all over. It certainly is not.


The way the markets have opened up after the weekend you’d think the Turkish event hadn’t occurred. DM equity futures have unwound all the Turkey move and USD/TRY has moved back from the 3.0400 spike to 2.9600, a level it was trading at in May.

Pieces I have read from US commentators definitely carry a ‘Move along please, nothing to see here’ tone and I don’t understand why. Is it because everything really is back to normal? Or is it because it is so far away from the US and US-centric things that it is considered a 3rd rate emerging market that really can’t impact on US things? I first noticed this tone during the coup itself with the Head of Strategy at Charles Schwab saying the whole event was a fade as it wasn’t a global issue. This was said before it was known what the outcome would be and it stunned me. Was a senior US investment strategist unaware or dismissive of the importance of the stability in Turkey to maintaining stability around so many global issues? Is this lack of understanding reflected in the behavior of the bulk of US investors? Wow. How worrying, but then also; wow, this is a huge opportunity to be ahead of them in the markets.

But we know the outcome now. The coup failed and it is no surprise. It looks like one of the world’s worst organized coups and the result of it has been a dramatic increase in Erdogan’s power.

This is not a return to how the world was on Friday morning. There has been a dramatic shift in power in the Middle East and I feel a realignment of allegiances in Turkey. Already Erdogan’s rhetoric towards the US and Europe has changed leaving one wondering how other (Russian) influences are gaining a foothold in the country. This is a NATO country so there is only so far one could imagine that going, but the situation is still of concern. The US reaction to the coup needs close examination and silences will be as telling as words. The US have Gulen and Turkey has Incerlik.

As for Turkey itself, the deputy PM, Simsek ,may well have had his longest phone call today spending 2:15hrs talking to investors to placate them. It seems to have worked with what I have read so far tonight from sell-side banks reflecting that message. ‘It’s over, fade it”. No. Think of it more simply than that. You were invested in Turkey thinking that it was a nice general EM recovery and yield play in line with the general mood. Or you were thinking of a long term investment in infrastructure there. Would you be as happy to do so now as you were last week? To the ADHD short-term traders, it may be easy to pack up your trading bags and move on, but this is a slow burner.

If you get notes from your sell-side counterparts telling you that Turkey is not an issue and that everything is as wonderful as it was on Friday morning, if not better, use them to light your barbecue.

I have bought USD/TRY at 2.9600 and am still short of DM equities. I have even added to my US equity shorts on this bounce as it appears that the US markets don’t get it as much as I feel they should. If you wish to accuse me of taking my book then go ahead. I am hardly likely to be positioned one way and think the other. That would be plain stupid.

Erdoganised Putinisation.

Friday, 15 July 2016

Turkish coup - Thoughts so far.

I'm going to write this on the fly as I really don't know what is going on in Turkey, beyond an attempted military coup. There are probably plenty of facts and figures out there that make the following look naive. So be it, they are just my own thoughts. I have not conducted research and apologise to anyone with greater knowledge for the lack of my own.

Turkey has a strong history of being run by military juntas so this is not like a military coup occurring in a main stream western democracy. I first visited Turkey when it was under military control in 1980. I was a teenager and nearly got shot because I misinterpreted my mother's instructions to be "back on the boat by midnight because of curfew" as her just wanting us back. No, there was a curfew with frightening, shaven-headed, boilersuit wearing, AK47 toting, giants wandering around. As I found out.

Nowadays Turkey is much more Westernised but we must not forget its roots. It is a melting pot of East and West and has, over the last few years become the overlapping bit in the middle of the world's geopolitical Venn Diagram. Syria, ISIS, Russia, US, Greece, EU , Iran and Energy all meet there. The country has long had the possibility of being the next global battlefield as it has already become the world's political chess board.

Just read the history of Constantinople to wonder how it has managed to stay so stable for the last 70 years.

We have a coup against a leader who has become increasingly autocratic. He has been sponsored by the US militarily and the country is a member of NATO. This is the fourth military coup in Turkey since the country joined in 1952, the other's being in 1960, 1971 and 1980 (when I was there).

We don't know whether the coup will be successful yet, the worst possible outcome would be a civil war with Erdogan going 'Assad'. This is unlikely due to the level of US and EU interest, but Russia is the other key local player and having had a jet of their's shot down, they would probably be happy to assist Erdogan's downfall. God forbid any Spetznaz are spotted in the coup.

I would suggest the most important question is who is supporting who. Worst case scenario would be Russian backing on one side and the US on the other.

Better scenarios would be:

- No external support and all domestic, though it is unlikely that anyone would try a coup without first getting their international ducks in a row, the military have normally held the position of supporting a secular state.
.
- The coup is backed by an international consortium representing broad interests. I see that Kerry happens to be in Moscow at the moment and is wishing for 'continuity' in the country. That doesn't differentiate between Presidential continuity or overseas alliance continuity. there is even the small chance that Russia and US are making up by getting together to topple Erdogan. Low probability but this is all just guesswork from me. Interesting that France closed its consulate two days before the coup.

Kurds. If things aren't complicated enough the Kurdish situation has me wondering which I the worst outcome for the Kurds. A militarily driven government where the military leaders have spent their whole lives fighting the Kurds, or a leader who likes to squash uprising like flies. Rock and a hard place.

ISIS - The back door to Syria has allegedly been open for years and terror groups have effectively been holding Turkey hostage to keep them open. This brief from Aimen Dean outlined it 18mths ago. http://www.bbc.co.uk/programmes/b04wwqcp The recent bombing of Istanbul airport would suggest that the equilibrium has tipped and the threat to the south-west tourist resorts would be growing. Perhaps the military sees this rise and feels not enough is being done to stop it. Indeed there were accusations from the Russians that the President's family has been aiding and abetting the Syrian oil black exports.

The coup is hardly a people's uprising against an undemocratic leader as military juntas are notably less democratic, But it depends on what the military coup next produces. If it just plans to topple Erdogan and then hold new elections without him or his family on the bill then this could be a good outcome.

But my overriding fear is that, as Turkey is such a tinderbox where everything meets, the risk for something going badly wrong is great. This coup is like defusing a bomb, a bomb with lots of multicoloured wires and lots of people trying to cut them.

My knowledge is not great, most of this is pure guesswork but from where I sit this is much scarier than Brexit, which in comparison will be like waving off guests after a jolly dinner party.

I normally counter extremes of mood with a tendency to favour mean reversion, but in this case, I will own up to being very worried.


00.25 BST - Hearing that the coup looks like failing. In which case add the outcome option of Erdogan seizing complete control over the military and becoming even more authoritarian. This would just accelerate the process to the next round of unrest. Ergodanised Putinisation.

Carney's Song

Carney sings The Stranglers.



Hold'em down, that's all I've done
Change a rate? You're having a laugh son,
Think they'll go tight?
Nope, you're not right.
Never a frown, just hold’em down

Every time just like the last
Hint I’ll move rates. Just having a blast
You think I will cut?
They’re stuck in a rut.
Never a frown, just hold’em down

Hold’em down, I’m a temptress
Through the ages, I tried my best
Rates, not to sway
Unchanged on the day.
Never a frown, just hold’em down

Next time around
Just hold’em down
Next time around
Just hold’em down

[repeat until retirement]

Thursday, 14 July 2016

Fifth wave or sweet sixteenth and sell?


Another goal for the Polemic FCBE 'Fade CB expectation’ trading model. I feel very sorry for Carney’s kids who must be so confused in late December to find the presents they were strongly hinted to get may not turn up until January. How old are his kids? Maybe they’ve never seen a Christmas present at all, though they have often been mentioned as imminent. 

THE BoE vote to hold rates steady came in at 8-1 which wasn’t exactly a close run thing so I do wonder how the market got it so wrong. But that didn’t stop sell side analysts immediately chuffing out reems on why it was a ‘hold’ despite swearing blind it would be a cut an hour earlier. I should have taken this as a clue that self-doubt is not part of the behavioural makeup of the protagonists because my first thought was that if I had screwed up the BoE forecast so badly shouldn’t I question my ability to forecast other central bank actions? This lead me to believe that the BoE inaction that led to GBP rocketing and FTSE falling (double whammy from interest rates and GBP moves), would lead to a questioning of the current complacent maxed out belief that central banks are going to print until we have hyperinflation. So I sold some US stocks. It was like micturating into a hurricane.  

But many of the reasons for the belief in the need to cut rates and stimulate are less acute than they were mid-Brexit panic. The UK markets have not melted, the BoE have not had to do emergency anythings, Osborne didn't have to present an emergency budget, UK stocks are fine and the mighty pound is less unmighty than it was last week. 

Meanwhile, expectations of BoJ action are hot, scorchingly hot. But then so is the BoJ's ability to disappoint. The Fed targets many things and most of those are sentiment and most of that  rhymes with ‘Rock Rices’ and those are at record highs. Surely the pressure for them to stay accommodative is waning fast, so why the mad onrush of stock buying? "Because it's going up ‘innit”. 

There is more to it than that. There has been a massive sentiment change. There has been a throwing in of the towel from the bear camp with ex-permabears wandering around picking up reasons to buy like used cigarette butts from the street, or more like spliff roaches as they may well be toking on the tail ends of a high. But when people only just latch on to the reasons they should have been buying 20% lower it normally means one of two things 

1- The fifth wave (Elliot chart theory). The euphoria one, the irrational exuberance one. The FOMO rally. The 'load the boat' and 'mortgage the kids' rally. Indeed the analogies to 1998/9 have already appeared. I am hearing some ghastly reasons to buy but I haven’t seen the TDI (Taxi Driver Index) being triggered yet. With bonds, equities and commodities rallying one could say that the only thing actually moving is cash. Cash has fallen in value against everything. Now this fits nicely with the belief that money is going to be printed and could be the first signs that monetary policy is truly and utterly broken and we all need to buy gold, which is also going up. The fifth wave should be detectable by record leverage being employed but at the moment it still only feels like stop losses on long cash positions. 

2- It’s a towel chucking blow off. The shorts and cash positions being stopped out and the sudden deafening silence from the peloton of disasters that we're normally subjected to has me thinking something mighty nasty is going to creep up on us. 

Volatility is pretty cheap at the moment in stocks and it may well be worth buying straddles in SPX. No, not just buying VIX, we want direction too. But for my pennyworth, I’m going to short stocks on the belief that CB euphoria is going to wane and something, something.. is going to upset things. By the way, What happened to China? Wasn’t it meant to have vanished up its own economic fundament by now? 

Now, lastly, I am going to unveil my secret weapon. Under this dust sheet is, not a planet busting laser, but the mighty 16th of July indicator. Every year I trot this out and sometimes it works and sometimes it doesn't but it used to work very well in the heady days of the massive late 90s bull run and fairly well since. Tthe July 16th/18th  period used to mark turns in trends. As to why, I have no idea, but option expiries and US Humphrey-Hawkins Testimonials have all been cited. 



"Sell into strength," they say. Well, it hasn’t been much strengthier for ages. They also say "never sell a new high". Hmmmmm.

Markets. Where physics meets psychology

I wish I was clever enough to work out the real detail in things I have hunches upon. Or rich enough to have a retinue of turtles, as Lord Brown did at BP, or Richard Branson, to throw ideas at and for them to work out if it would actually work financially or physically. It would save me a lot of time. Perhaps that’s what crowd-funding is all about. You have an idea, post it on a crowd -funding site, everyone votes by throwing their money at you, you then spend it until it's all gone and if, as a passing coincidence you happened to make something that worked then it was proof that it worked and if you didn’t it was proof of the greater fool theory, where you were not the greatest fool. A poor man's version is twitter, where every now and again you can throw 140 characters out there and see what happens. 

I have a mind that likes to see everything in visual representations, it was always a struggle for me to cope with maths once I couldn’t visualise the mathematical world as a rolling landscape of curves and lines. I would cope with multidimensional maths by picturing series of slices of lower dimensional representations, but basically, if I couldn’t picture it I slowed right down in a morass of squiggly greek things. It has been the same for markets. I visualise a seething firmament of probability curves and prices, as multidimensional as my feeble brain can manage, yet nothing as powerful as the algorithmic chips buried in correlation models, but it has sufficed. 

This vision is something that I have tried to drum into my children. Nothing is certain and every decision you make will have been formed from a summation of all of your experience, to derive a probability curve on which to make your decision. There’s a car coming down the road. It looks miles away and a second later it still looks miles away. Therefore it is most likely not to be moving very fast so you have a high probability of not being killed if you cross the road. Though do watch out for the Tesla on auto-drive, with no lights on, coming the other way. Smaller probability, but there none the less. A infintesimal probability if you were to ask Tesla. 

So, markets are a hotch-potch of probability curves all zapping around and interacting with each other influencing the things we see that are called prices. A Brownian motion where the cloud of probability is the air molecules and the price is the lycopodium powder. My point is that the market analogies to physics are copious, yet the inputs are psychological. Perhaps it does make sense because at their very core both physics and psychology are built on probability curves. A particle is only a waveform of probability as is our decision-making process. 

I am going to digress a little here to touch upon another long-held hunch that if we are looking for quantum computing then we should look further than our own brains. A hum of probability clouds kicking up abilities that really shouldn’t be possible. Behaviour and physics. But this leads to a paradox hunch of mine that we will never be able to work out how we work because we can never be cleverer than the system that makes us clever. 

But back to the physics of behaviour and the hunch that I threw into twitter. It was this 


It's a damped oscillation and very mathematical it is too. But for me, it represents price actions after news events, political responses to emotional issues and media responses to just about everything (Brexit is covered by all three). 

I had a nice reply back from a follower (@financeinottawa) who noted it looked exactly like a Cauchy distribution, which had me thinking back to the Witch of Agnesi, which preceded Cauchy but none the less produced a nice swooping line I could visualise (Wiki it, There’s a nice gif that draws it).  I am now on the lookout for Witches of Agnesi in market patterns, much as a new breed of nutter is looking for Poke’things in the fast lanes of the motorways as they test the behavioural response of drivers and the theories I expanded to my kids about crossing roads. Nintendo is doing nothing more than accelerating gene selection. Genes - more physics and behavioural overlap. 

How the heck do animals inherit behaviour? Wilderbeast know how to run from birth and humans are able to believe, from birth, that they are cleverer than all other humans. I know this because I had an online chat with an old non-markets friend asking about binary FX options. That always sets off alarm bells. Much as Homer Simpson walking into the room holding a lump of glowing plutonium asking if it would be a good way to warm the baby would. "Just put it down and run away". Some firm was trying to sell him short time frame binary options, which MUST be a sure-fire way to lose money because why else would a spivvy firm be spinning them to him? I am amazed at the disconnect between regulated bank behaviour and bookies. The regulators should make up their minds. If banks are really just casino’s then let them be run as casinos. If not then put casino’s, sorry spread betting firms, under the same regulations as banks. But they are. No, they are NOT. Once you have tried to have a triple A sovereign wealth fund cleared through a bank’s credit and compliance department and seen it take 3 months and even then with no trades allowed that could be considered leveraged (such as selling options even if they had bought them already from another bank) then you’ll appreciate that your friend being allowed to punt 5 minute binary FX options after putting his grandmother's passport details into an online account, is NOT the same thing. 

Unlike this which is obviously exactly the same thing. 



It is both the tracks left from subatomic particle collisions in a magnetic field and the price action of my friend's 5 minute binary FX option portfolio. 



Tuesday, 12 July 2016

Brexit bounce, nuclear CBs and new highs.



The Brexit trade is suffering a reversal. GBP is motoring higher, as is the FTSE 250. The FTSE250 is significant as once the FTSE100 stopped tanking and reversed to ‘not since the last time’ highs, it was rightly pointed out that the FTSE100 is loaded with non-UK producers of global stuff, that happen to be listed in the UK, so naturally any percentage fall in GBP fall should be matched by similar rallies in said companies when expressed in their listed currency of GBP. Thus the FTSE250 became the 'bearometer' of Brexit for many commentators.

With that in mind it really should be noted that the FTSE250 is back to pre-Brexit ranges. Asking what that is in USD terms should be discounted as the lack of currency effect was being cited as a reason why FTSE250 should be watched in the first place.




Now it’s at this point that I start 'umming and erring' as I have two opposing thought processes.

Whilst I am fully onboard for a Brexit squeeze as expectations are so extreme with respect to GBP, BoE and UK Corporate doom, I am concerned that the back fitting story of new Prime Minister May as a softer Brexiter than Leadsom troubling. Brexit is Brexit. The only debate I can see is if the UK takes the EEA route or goes out alone. The idea that Brexit won't occur under May is absurd and, as with the belief that a load of lawyers can upset the process, a part of Kubler-Ross model which sums up the Brexit circe




Denial and frustration are still rife. I, however, am trying to work up the recovery side of the curve and it would appear that I am not alone in the ‘let’s get on with it’ camp. I am impressed at the speed with which Osborne has started peddling UK Inc in the US and  Sajid Javid’s trip to India. However we do need a dose of reality over the likelihood of positive outcome from that India trip. The EU has been negotiating a trade deal since 2007. I was wondering if the UK could pip them to a deal from a standing start but I was educated last night by twitter friend 'Brahman @_Financeguy' whose tweets I aggregate here -

"India won't agree FTA without free movement of IT personnel. EU negotiations stalled on UK objections to that. India also seeking equivalence in recognition of professional qualifications - law, medicine under Mode 1 with rights of Indian qualified professionals to practice freely in the EU (for these purposes the UK) . U.K. resisting this too. India also seeking recognition of its data protection regime as equivalent to that if the EU for privacy etc. India also seeking recognition of its IPR (eg for pharma ethical drugs and generics) as equivalent to EU & lastly India seeks recognition of its whisky as equivalent. All these resisted by UK on its own or with one or two others. Point is that ex-UK India-EU deal more likely with India competing with UK to supply some services to EU market”

So don’t expect anything soon. That bit about the whisky equivalents really surprised me. I  wonder what would happen if India insisted their wine be ranked equivalent to France’s finest left bank Bordeaux.

Japan - The gloves are off and it’s blindingly obvious that Abe is about to throw the whole quiver of arrows at stimulating the economy. Nikkei has responded as expected but USDJPY is still not really that far off its lows. Though I have bought Nikkei, JPY hedged, I am a bit concerned that its SO obvious 5 minute macro have piled in and there is room for disappointment. Isn’t there always with Japan? So I am cautiously long the Abe trade.

The most obvious effect I am seeing in the market is that of central bank response. The reason that most market have taken off is due to a massive verbal response by central banks to the Brexit event. But there is a timing issue here. The verbal intervention is instant yet the effects it is meant to counter have not yet been seen. The effects may indeed never appear because of eh verbal intervention but there is a strong chance that the global economy drifts along as before and the market expectation for extreme CB accommodative policy will fade as data such as the NFPs continues to surprise.

Now here is a something. The Citi US surprise indicator is pretty much at zero. BUT some are surprised at no surprise being the highest surprise since the last time there was no surprise. Which is a surprise to me.




How am I trading this? I have cut my long FTSE250 this morning but I am still running long GBP and have actually shorted some FTSE100 ( stops above recent highs). If it rallied on GBP’s fall then it should suffer in reverse. Indeed it massively underperformed yesterday but I have a feeling that whilst positionally the currency part of the Brexit trade has further to unwind, the equity part has already to a great extent and so will be more susceptible to a first rollover should the May effect fade.

Meanwhile, in ‘Oooh I forgot all about that' land, oil has been drifting lower and just for fun I have put on some trades looking for $50 again. Oil hardly trades on fundamentals within a $10 range, the rest is speculative, so in a mood of new highs in so many asset classes oil may well do the same.

With bonds and equities all pushing highs we could summarise everything simply as long cash positions being stopped out.


Monday, 11 July 2016

Brexit bounce and Financial STD's

It’s been over a week since I last posted due to the ratio of other commitments versus strong new thoughts. In that time the bitterness over the Brexit vote has not subsided but news flow has tell--tale indicators to it that suggest we are reaching a market Brexit exhaustion. Markets don’t do themes for long and the resurrection of the Italian Bank story, combined with nano-analysis of supposition leads me to think that GBP has gone as far as it will for now. I had been looking for a knee-jerk drop to sub 1.25 in GBP/USD but not even a monster Non-Farms could push USD higher than that low liquidity Asian dump to the 1.27s.

Pound Spring's Sprung
Short positions riz
I wonder where reversal is.
They say reversal's on the wing
But that’s what I’ve sold and bought cash thing.

Whilst writing this Landsom has quit the running and May is unopposed. GBP has shot higher as has the FTSE 250. I think this is as much to do with Brexit fatigue as it is to do with which Tory candidate will give the UK the softest Brexit landing. The markets were ready for a retracement and this is just the trigger.

And on to the next old curse to make a reappearance. Italian banks. Italy will be fine. It has to be if the EU is to remain the EU. Considering the song and dance coming out of Brussels about EU unity they are hardly going to let Italy blow the system up a month later. No. There will be fudges, bale-outs, bail-ins, balance sheet transfers and guarantees. As with Greece, local investors will be allowed to financially hang, but any motherlode of debt belonging to northern Europe will be guaranteed by the ECB (or an intermediary body) and any risk of contagion snuffed out with firewalls of EU underwriting. The losers will be shareholders, but it will not be a global issue, more like watching fireworks go off at a display. As long as you are standing far enough back you'll be fine.

Or perhaps a better analogy is to consider Italian banks the genital herpes of EU Finance. They regularly flare-up in the nether regions, cause discomfort, are infectious but are not fatal.  However, no one risks going near them and instead screams in disgust at the host for ever having behaved so badly as to end up infected. The host meanwhile, claims innocence of knowledge.

If we were to continue on that train of thought -

Chlamydia - Bank Non-performing loans. Many more people are infected with it than realise, or are willing to admit, and too few are willing to go and get screened. Often confused with Asian Flu.

Gonorrhoea, known as the clap - NIRP or Qlap (QE Lunacy, Absurd Policy). The second most common monetary policy found in DM markets. Very infectious, inflames bond prices and is very painful for deposit holders. The disease is easily transmitted but doesn’t necessarily lead to monetary transmission.

Syphilis - Desire to be an investment banker. A lingering disease caught in bars and clubs when exposed to wild spending. If caught early can be cured but the 3rd stage is incurable as it infects the nervous system rendering the victim… well, you know the symptoms.

Thursday, 30 June 2016

Market gasps a breath.


Well that didn’t take long. Tuesday's post was about reaching the point of maximum fear and, voila, since then the markets have gone ballistic. The old favourites that is, not the likes of USD/JPY.

Today is probably the first time that many, me included, have looked up from the brexibollocks to take note of what's going on in the rest of the world, as the rebound in markets has allowed us to surface and gasp air. How long it will be before we can grab another breath is mote. So what caused the bounce? From what I hear the markets have bounced because -

Brexit is now unlikely - Err No. But an EEA solution is possible and more to the point there is some sense being spoken.
Central banks had said they agreed to stabilise markets and so are obviously buying everything - Big definite ERR NO.
Algos chasing it higher. - Indeed they could be but that isn’t a reason in itself so Errr No.
Stop losses. - Markets always blame stop losses when they haven’t a clue
Month end - It’s like a 'stop loss’ excuse but bigger and can only be played once a month. If it was so obvious what month end flows would be or even are, thee price would have adjusted for them long before. But hey it’s month end, quarter and half year end and a few peoples fiscal year end too.

To those I would like to add my favourite, which is that people are now realising that a Brexit will not mean such a global disaster that even cake shops in Argentina have to close. Basically, a touch of rationality has returned. This means we are at a saner point in the market where we now have to wait for the actual effects of Brexit and political leadership change to occur, seen through data, rather than react to assumed effects. As I cannot repeat enough, assumption is the mother of all fk ups and there was plenty of assumption around two days ago.

Theresa May has a 68.5% being the next Conservative leader and Dianne Abbott has 1.8% chance of being the next Labour leader. How do I know the actual probabilities on these outcomes? I don’t, I made them up, but as proven by every other forecasters running up to Brexit, you can’t be proven wrong by quoting a percentage outcome probability on a single event forecast. For example, if I’d said there was a 99% chance of Remain winning last week would I have been wrong? No. The loss fitted within my 1% forecast of them losing. And vice versa, if I'd said Leave had a 1% chance of winning am I hero for getting that right too? Err well. So from now on I can call any percentage I like and be right. I am amazed that market forecasters haven’t cottoned on to this yet. Give a probability curve of outcome rather than, say, a  digit precise EUR/USD forecast. YOU CANNOT BE WRONG even if you can be way off with your mean.

The rest of the world. It looks pretty calm and is in fact getting a lift as global interest rate policy is being effected by Brexit (more dovish), though the economic effects globally have not been felt. The one thing that does stand out to me is USD/JPY. It dumped on the Brexit global shock wave but really hasn’t bounced that far on yesterday’s rally in risk. Attention may well turn back that way. The UK, for example..cough cough.. has become exceedingly more competitive against Japan with GBP/JPY nose diving 10%. Gosh, all those car factories they have in the UK are suddenly looking even more like a good investment! There was of course a double dig there. One at the population of Sunderland who decided to vote for Turkey Brexit Christmas with regards to their local Nissan plant, but also the other way at those thinking that it’s a sure fire slam dunk that the Japanese would pick up sticks and leg it to Czechoslopolungaria. Which I assume is what the unelected Eurocrat civil servants will be proposing for the name for Europe(East) as "NeuEast Germany" may still grate a little.

But I have gone long of USD/JPY AGAIN. I bought a bit as I bought US Stocks two days ago and though I expect I will probably lose I have come to think of buying USD/JPY as my sacrificial offering to the trading Gods. So just think of USD/JPY as Crastus’s sons in Game of Thrones. I'm sorry but I've been binge watching the first five series on DVD. As a cynical late starter I have been completely smitten by it.  As have the rest of the UK, who have taken it so to heart they are playing homage to it by acting out the whole plot in real life. The parallels  with our politicians, infighting, Westeros (UK) Essos (Europe), the wall dividing and the wild things threatening the south (Scotland) are at once terrifying and exciting. There is such scope to allocate characters that instead I will just leave it to you in the comments column.

I have little to add to sensible debate at these levels and will devote the next few days looking into what's been going on with other neglected global interests. The Russia/Turkey relationship for example and maybe commodities. Dr Copper has been surprisingly perky and oil is back testing highs, which isn a low GBP environment means I should look again at the oily explorer UK toxic waste I have in my portfolio. it should get a lift from 3 angles.

Good luck with Greece by the way. Now that Brexit is done I don't think it will be any more Mr Nice guy. By the way Tsipras is Theon Greyjoy -  which must make Scheuble Ramsay Snow.

Wednesday, 29 June 2016

Ralph Mellish and the markets - The day nothing happened.


The recovery in the markets in the face of the wall of media predicted doom has me instantly turning to Monty Python's Mr Ralph Mellish and the day when nothing happened!






[Ominous music]

Voice Over: June the 28th 2016 was much like any other summer's day in the markets and Ralph Mellish, a financial correspondent at a broadcasting company, was on his way to work as usual when... (da dum!) Nothing happened! (dum da da dum) Scarcely able to believe his eyes, Ralph Mellish looked at his phone, but one glance confirmed his suspicions. Despite his warnings, and those of his colleagues, there was *no* collapsing stock market. No dismembered debt market trading at record distress. No Sterling Crisis. Nothing. Not a sausage. For Ralph Mellish, this was *not* to be the start of any trail of events which would not, in no time at all, involve him writing a tangled knot of supposition, nor a web article predicting armageddon, which would, had the markets been not uninvolved, surely have led him to no other place, than the central position of economics editor at the BBC.

[muttering voices, News anchor shuffling papers]

Voice Over: But it was not to be (ominous music returns). Ralph Mellish reached his open office space in Medialand, as the FTSE opened at 8:00 a.m., exactly the same time as it usually did!

(door opens)

Enid: Morning, Mr. Mellish

Ralph: Morning, Enid

Voice Over: Enid, a sharp-eyed, clever young girl, who had been with the firm for only 4 weeks, couldn't help noticing the complete absence of tiny, but tell-tale references to the VIX in Mr. Mellish's writings. Nor did she notice anything strange in his Emerging Market references that whole morning. Nor the next morning. Nor at any time before or since the entire period she worked for that firm.

Ralph: Have the new assumed correlations arrived, Enid?

Enid: Yes, they're over there, Mr. Mellish.

Ralph: (faintly) Oh...

Voice Over: But for the lack of any untoward circumstances for this young secretary to notice, and the total non-involvement of Mr. Mellish in anything sensationalist, the full weight of journalistic nepotism would have insured that Ralph Auldus Mellish would have ended up like all who challenge the fundamental laws of the market. On BBC Newsnight being quoted as an 'expert'.

[Ominous music]

Tuesday, 28 June 2016

Don't Panic, it's just like EU 2012.

Regular readers will know that during the EU crises I wrote on the Macro Man blog as part of Team Macro Man, where we built a ‘Band of Brothers’ type camaraderie as we fought off attack upon attack from EU doomsayers. We hunkered down in our bunkers of analysis and we were blitzed with extrapolation of disaster, shelled with CDS prices, machine-gunned with bond spreads, mined with editorials from economists and gassed with nonsense. Yet we survived and our prediction that there would be no EU melt down, no financial carnage (other than that self inflicted by the other side shooting themselves in the foot) and no need to run to the hills came to pass. But, of course, by then there was no one left to listen as the Disasternistas had headed off to predict that China would economically implode by 2015.

Why that reminisce? Because today I am missing my old TMM buddies. They were the voice that would whisper “Stay strong, friend”, the ear that would listen and the head that would calmly and cooly declare that if I was mad then they were too. Today I need them, as the world around me is as madly suicidal and irrational as it was back in the midst of the Euro crisis. Back then, the panic was due to the belief of imminent collapse of the EU because of internal ineptitude and mismanagement, which meant that one had to run for the hills, or rather Swiss Francs and British Pounds. Today, ironically, it is due to the belief in the stability, power and unity of the EU over the ineptitude and mismanagement of (the once safe haven from EU) UK.

I feel alone taking on the barrage of extrapolationist Brexit gloom that I am being subjected to from every source. The mood is reflecting the extremes of expectation that I last felt during the Euro crisis. My first important indicator is flashing warnings at me. The USIBBI (US Investment Bank Binary Index). As we experienced before with Europe, US opinion tends to be all or nothing and does not do nuance. One for all an all for one, they all agree on outcome and their agreement is usually reflective of the man at the top. This is particularly apparent if you visit funds in New York. They all have the same very strong and determined opinions (and hence positions), even on matters which are clouded in uncertainty. The US intermediaries are peddling unfettered doom and of that I take note.

But in today's world, it is social media that is the source of turbo charged self reinforcement. Facebook, as a friend just analogised, is the social media that does Rational to Panic in 6.8 seconds. No wonder everyone is panicking when they read half of the bollocks on Facebook that relies upon the suppositional extrapolation of assumption. The feedback loop of panic is more likely to cause problems than the reality that underlies actual change. Yet, here we are in a Dyson vacuum cleaner, where the hot air of assumption is spun around at near the speed of sound, catapulting rubbish outwards where it is collected in a transparent container for everyone to see. My FBBI is flashing Red. The Facebook Bollocks Indicator. I think we can agree that the DPI ( Dinner Party Indicator) and TDI (Taxi Driver Indicator) have been flashing alerts for a while as self-declared experts on EU membership have sprung up around us like zombies from the earth.

Here are my 'Things that don't matter' :

- One day falls in £ or FTSE
- Ratings downgrades from AAA to AA (same level as the US) when every other agency did that to the UK years ago. Never forget who caused the 2008 financial crisis when looking at the credibility of ratings agencies.
- Charts of Gbp/Usd posted on Facebook with "I told you so”. These suggest not imminent doom, but that the person posting them knows Jack Sh1t about how things actually work.
- Developed market credit default swaps on countries issuing debt in their local currency.
- Nigel Farage and UKIP
- The FT (apart from FTAlphaville who really matter)

And 'things that do matter' :

- 51.9/48.1 is not a massive margin of victory. That limits just how far UK can detach.
- The choice of EU relationship. EEA is a comfortable ground that many on Leave and Remain side can agree on. It provides the single market.
- Having some leadership. We can even add the England Football team to the Conservative and Labour Parties in the 'Leaderless because of Europe' list. Uncertainty shocks require policy responses. Someone needs to put on the captain’s hat and grab the wheel.
- Mrs Merkel. She's in charge, not Juncker, not Hollande. Juncker resides in the same box as Sepp Blatter in my cupboard of respect.
- Real trade weighted pound being back to where it was mid 2013. It should and likely will, fall further, but probably not by a huge amount. But each time it falls, it saves many jobs
- This isnt the 1970s. Gilts rallied hard, and equities have fallen no further than in Europe, so there is no evidence of the capital flight that would force the BoE to hike.
If Gilts sell off at same time as weakening pound then we're in trouble, but we are not even close to that point. ,

But it doesn’t matter what I think is important as it's the massed ranks of everyone else's panic that will drive things from here. I am sitting alone in my bunker waiting for all of the emotion to calm down. I have my Kevlar gloves ready and have already started to buy US Stocks below 2000 SPX. The world will not end on Brexit and it smells to me as though we are at 'maximum fear'.

If you want a model to trade GBP on you could do worse than using Kubler-Ross.

Monday, 27 June 2016

Brexit Bullet Points

A scatter gun approach to many thoughts.


Manic Monday - The weekend has seen the addition to the unknown of Brexit the unknown of who is leading the UK. Both main UK political parties are, or nearly are, headless. I am expecting GBP to take a hit and FTSE too. Global contagion will follow but should be faded first. Oh, and I cannot believe that this will be a real global crisis because it could be easily solved.--- This was written Sunday night. The Asia open was messy but the bounce back into European open has been fierce and shows the fear factor is being overcome by rational value seeking. I would feel sorry for the media who had their 'market crash/panic headlines ready, but instead will laugh.

If the UK is sailing off into uncharted waters it needs strength of guidance on the bridge. The UK has seen its captain jump overboard and the rest of the crew are drunk and fighting.

OK. I've Just made up a bad joke - "Whats the difference between a battery and the UK political hierarchy. A battery can take charge".

The Remainers are revolting. There is a petition for another referendum. The petition in itself is a referendum and so is of no worth unless it exceeds the total of votes to leave. i.e. 17million. If this is taken seriously before that point them it becomes a never ending circle of possibility for each subsequent losing side. The petition should be looked upon as a book of condolence only and as such  an important part of the grieving process. It's otherwise useless.

The only path to not leaving is the Government turning against the plebiscite and suffering a constitutional crisis. However. with both parties decapitated is that such a big deal for them? Kitchen sink the constitutional crisis on the past incumbent and say you are resetting the counter back to a time of previous normality and starting again.

Scotland. Sturgeon trying to sound stateswoman like going 'carpe diem’ but she doesn’t stand a cat in hell's chance of stopping the whole of UK exitting through existing process so it them comes down to Scotland leaving and trying to rejoin the EU. During the Scottish independence issue the EU said 'No, you will have to reapply’ so the same will apply now and that process will take years. My feeling is that Sturgeons 'not resting until all avenues are exhausted’ is already very near exhaustion.

Longer term. If Scotland were to leave then someone should remind them that they will not be attracting all the banks and finance business from London to a EU domiciled anglo alternative for the same reason that Dublin will fail, namely the EU will insist that a country hosting a bank should be able to bail it out upon failure. Scotland will not have the balance sheet to do this.

London's Sadiq Khan. No way London goes independent from the UK, even with regards to EU. Forget this now. As an aside, more Londoners voted to leave EU than voted for Khan. More noise.

David Cameron went down with a trader's lethal disease. He thought he was bigger than the market.

I would like to announce that my house is going to become part of the Seychelles because all its inhabitants like the Seychelles.

The Youth vote - The outcry that the young who have to endure the decision longer than anyone voted 75% to remain would cut more mustard if more than 36% of them had decided to vote (meaning 27% of them having voted remain) but what is this new idea that votes are life expectancy weighted? Do I get a vote from the grave if they decide to overturn something I voted upon after my death? If you are going to go down that route only 40yr olds should be allowed to vote as they are of the average age.

Bankers leaving London. The rumour of 2000 Morgan Stanley staff departing for the continent was denied but methinks there is a whiff of PAST truth about it, yet no senior banker I know wants to go to Europe. Frankfurt doesn't have the infrastructure or cultural appeal of London and Paris is taxtastic. Both centres relish bonus caps too. A more sensible route is to follow the example of UK manufacturing companies. Keep all the high value idea generation in the UK and outsource the basic grunt work offshore. Thus the EU could well end up with all the cash settlement and transactional business, whose value is collapsing through e-business anyway, leaving the high value decision makers and financial designers in the low tax, low regulated UK. Result.

EU behaviour. On one hand they want the UK out asap. Much like the drunk at the wedding who has dirt on the bride and has hit the groom they don t want them to be heard by anyone else with doubts and off the premises before they can cause trouble. However, Merkel is playing a more lenient hand wirth regards to timing. I doubt it’s through generosity but more because she thinks that extending time might give the UK time to sort it’s mess out and decide to stay.

Racist behaviour after the vote. Dear overseas readers. the UK is no more full of racist scum than the US is of gun toting mass murderers.

Markets. US stocks. A buy soon, before they scream to new highs. They will not melt on Brexit to the point of threatening the health of the US because the US will lean on EU and UK to sort something out ( c.f. that odd 2am Monday morning meeting between Merkel and Tsipras that saw his knees crumble and an agreement reached).

Italy. Signs of solidarity between core EU, but I still love running short Italian debt. Italy you are not out of the doo doo yet, despite the northerns being nice to you during Brexit. Is that your bank you dropped Signor?

Spanish elections. Sorry I have been really remiss on all of this and don't know what to make of it all. But assume that Brexit polarity is helping Spanis polarity.

Anyone noticed Tsipras tooling around in the recent EU Brexit meetings like he's now a big boy? Mate, you are their fag (UK Public School term for lower year boy forced to perform menial tasks for the older boys).

Bank of England rate rises halting housing?  Forget it. There will be cuts and QE on a collapse not rises. Inflation caused by FX is not due to excess demand of goods so monetary policy not an acceptable response. It does more damage.

UK house prices. Conjecture is on a fall but isn't a fall what everyone wanting to buy a house is demanding. Housing is great media fodder as any price move, up or down, is a pain to someone.

1992 when UK fell out of the ERM was the start of the 2nd UK renaissance.

I have just won a contract for a US client beating a US supplier based on the fall in cable. This is a manufacturing contract too that I will be giving to a UK company. This has occurred due to the fall in the pound on Brexit.

Market trades. Going long SPX on its first momentum pause on a fall sub 2000. Same idea with Cable (gbp/usd to the newbies) 1.2500. And selling more BTPs because there is only so much shit the Germans can back via the ECB.

Is the Bank of England now going to give up its 13% capital key in the ECB?

I am completely bored with 'not since the last time' statements, They are of absolutely no predictive power whatsoever so just stop it.

Circular arguments abound based on starting points of assumption. If this were physics, these circular currents would make Fleming's thumb 'fear'.

My final comment -
The UK is full of some very clever people who know what to do in crisis. Don’t confuse them with those in charge.







Friday, 24 June 2016

Cuban Missile Crisis. Sense will prevail.

Humankind has a natural inclination to avoid pain. If UK votes to leave and it threatens other countries' economic stability then other countries will do what they can to alleviate it.

There is punishment and there is mutually assured destruction. It's much like the cold war. Threats are made but when fingers are on buttons they will waiver and deplomacy will take over to avoid net sufferance.

I cannot believe that the EU, whose behaviour has constantly displayed a 'whatever it takes' response to survival, would let a Brexit vote paint themselves into a corner of sufferance.

As any parent knows, threats of punishment before the action are a different matter once the action has taken place. Negotiation and compromise is still most likely.

If we seriously think that,as the FT has suggested, the likes of the Mexican Peso's fate is in the balance of Brexit then something is messed up. Shock is one thing but reality is another. The tertiary correlations should be faded.

Look at this as the Cuban missile crisis. Sense will prevail to protect the majority. If you don't believe me look at the response to the global financial crisis. The masses were forgiven their debt to preserve society.

Position update.. started trimming GBP 1.4000 Sept puts. Watching FTSE to buy. Will buy EM such as MXN that is being slammed on tertiary Brexit arguments. Running short BTPs as that is going to be a slower burn Euro woe.

Tuesday, 21 June 2016

Psychology over Physics in today's markets.

A few, well quite a few, years ago I found myself selected by the bank I worked for to be on the interview panel for the graduate intake into their investment banking arm. I was convinced that most of the applicants' CVs were describing more than one person, so complete were they in achievement. It all made me feel very inadequate. This inadequacy was only heightened when I found myself sandwiched on the interview panel between a credit derivative expert who had been a top physicist and the head of our quant unit, who I thought I knew quite well, but through the feedback of the interviewees I discovered was a famous academic mathematician.

I had ended up in this position because I had requested graduate trainees for my group. I had also been told that I was exceptional as I had requested candidates with brilliance in psychology rather than physics. The HR department had even called to enquire whether my spell checker had misadapted ‘physics’ on my job specs. No, I wanted psychologists, Ok, they also had to understand maths to some extent but psychology trumped physics or economics. I needed people who could read others. whether they were traders, clients or the whole market. Economics is a tool but it is only an input into decision making and the timing of decision making is crucial in markets. Timing is probably an economist’s greatest weakness.

The financial world has spent the last 15 years staffing themselves with mathematical geniuses but the actions that have caused the greatest disruptions to the global markets have not been mathematical but behavioural. "It has been emotional", as they say. Currently the state of the markets rests upon the outcome of a vote on the UK’s membership of the EU. The way people vote is driven by a stream of inputs used to determine an outcome that is considered right. Right. Learning how to differentiate Right from Wrong is something that has been engrained into us from the earliest of ages. Our parents' lectures, our tuition and every Disney film ever made are geared around training our 'right from wrong' instincts. But with the EU referendum there is actually no right from wrong. It's just a choice in the forest between two paths. Both lead off into the darkness of the future.

The markets are not about deciding which way we as individuals would go, but which way a group would go. If I were an observer trying to predict which path the group would decide to take and were allowed to employ either a physicist or or a psychologist, I would hire the psychologist. Even with perfect information group behaviour can deviate from expectation because of emotional feedback. The physicist would analyse the visible 10 yards of each path and assume the group would come to the same conclusions. Yet how the group came to their conclusions, as to where the paths finally end, would be more greatly weighted by the characters within the group and how they interacted with the others, than the raw data. The proliferation of survivalist reality TV shows is testament to this.

There has been an emotional response to the news over the last 6 days. Opinion has been swung after Jo Cox’s murder and Nigel Farage’s immigration poster, neither of which have changed the underlying logic of belonging to the EU or not (a small sample set can be seen here . But the response in the markets has seen trillions wiped on to global asset values. Unforeseen by physicists, mathematical models or economists the response was instantly predicted by behaviouralists who rightly assumed (I was wrong) how the crowd would react. Behaviour is what drives price, not maths. Though the closest mathematical analogy I can draw is harmonics. Understand harmonics and you'll see patterns in the distribution, frequency and strength of the stories emanating from Jo Cox's murder. Yet overall, the maths is purely an input that behaviour considers before pressing buy or sell, as logic is only a consideration to behaviour before ticking YES or NO in a referendum.

Behavioural economics is rightly taking off as a field. Economics is all about behaviour, right from a supply and demand curve which assumes a rational response to price (which if found to be wrong is excused through inelasticity, where inelasticity equals fudge), to price, where the best traders respond to how others are behaving rather than the technicals of price discovery. Highjacking other’s behaviour is a surefire shortcut around analysis. Why else are the wires so interested in what others think? The best traders I have ever seen are the best psychologists rather than the best economists or mathematicians because who they are watching includes the mathematicians and economists as well as, more importantly, other people pressing buy or sell buttons.

So back to that interview panel I was sitting on. All the candidates had wonderful mathematical analytic abilities but many final decisions were based on the answers to questions, some of which I embarrassedly admit were far from orthodox, that elicited an ability to interact and read the future behaviours of others and adapt their own responses to maximise outcomes. Basically, social and psychological skills.

How are people now going to behave? On the basis that you fade all swings in expectation around a median of ‘meh’, this massive swing back to Remain is probably best faded as, though logic remains logical, emotions fade. The emotional ADHD of the populace is only rivalled by my own. One other consideration is that now that voting 'Leave' has been emotional branded as making you a right wing murderous moron, it is much less likely that such a voter would declare such intention in an opinion poll.

I have rebought GBP puts and gone short FTSE.