Theresa “Kitten Heel” May yesterday signed the letter which will today be handed to the powers that be in Brussels triggering Article 50 of the Lisbon Treaty.
All the while, the TV presenters were wondering how markets will react today to the formal filing of divorce papers and what the immediate impact would be. Take it from me, the answer is “Dick on a stick!” In fact, it will in all likelihood be another two or three weeks before we get the first meaningful statements on process and timetable.
Why the post-Article 50 exit process timescale is set at two years escapes me. It seems as though it was a random number chosen in order to give Article 50 some relationship with reality although I doubt that, when it was promulgated, anyone ever expected it to put into practice. I, for one, don’t think much will have been achieved by March 29 2019, no matter how hard they try. May will find it intellectually challenging enough to get her head around all the – now for the fashionable phrase – repeal-and-replace legislation while trying to find a sensible balance for the UK’s future relationship with the rest of the Union without the opposition’s probable recalcitrant points-scoring in parliament and the pompous strutting of Nicola Sturgeon who needs the Scottish independence debate to remain in the forefront of her people’s minds so that they can’t focus on a visibly failing administration.
ONE DAY LIKE THIS
But none of that is going to happen today. While camera teams and news presenters alike are down and out in Brussels and London, markets will rumble on in their rather futile attempt to make head or tail of the world they are trying to reflect. Sterling will continue to be the principal canary in the coal mine. The pound has remained in a fairly tight US$1.20-$1.27 trading range since the initial post-referendum dump and the second wave of selling in early October, and it is hard to imagine any great upside from here. Early in the year I opined that anybody who had no specific need to own sterling would be best served not to as there were clearly more arguments to sell it than to buy it. As we approach the end of the first quarter and Article 50 trigger day, not much has changed. Traders will, in all likelihood, be happier to sell on bad news than to buy on good. As for the rest, try tossing one of those new, 12-sided pound coins that came into circulation yesterday.
Meanwhile, the Greece conundrum rolls on. The Eurogroup is planning to discuss “further measures” at its April 7-8 meeting in Malta. Front runner would appear to be the idea of deferring interest payments that, with 2040 being touted, would take €180bn off the payment schedule, which amounts to a new loan without having actually effected one. With every rescue, the single currency group is getting deeper and deeper into the mire and Yanis Varoufakis might not be a million miles off target with his eurosceptic views.
With the Netherlands out of the way, the French elections as good as done and the manifest failure of the German opposition, both on the right and left, to give Mutti Merkel and her CDU the spanking it had expected in the Saar and a grand coalition in Berlin looking like a racing certainty it should be time for Europe to focus on the problems in hand.
It’s been a long time since kicking cans down the road was the “phrase du jour”. Maybe what rattles Brussels most is that Brexit calls for actions to be taken and decisions to be made and all that with actual, predetermined timelines. Whether any of timelines can realistically be met or not has yet to be seen. Greece, on the other hand, has been prevaricated and procrastinated over and if the Eurogroup gets its way, new standards will be set in eurozone smoke and mirrors problem-solving.
BUILD A ROCKET BOYS!
As though life wasn’t hard enough, BlackRock is to revamp its active management unit. In the race to cut costs, US$8bn of actively managed equity money is off into algorithmically-driven quant funds while the “expensive” money managers will be spending more time with their families. Whether replacing expensive portfolio managers with equally expensive computer geeks – the programs have to be written and soon the chaps who design the better mousetraps will expect to be paid accordingly – is a progressive or a retrograde step is open to debate.
Algorithmic trading aims to arbitrage the weaknesses in human analysis and emotional decision taking. But how does one computer arbitrage another one? 20 years or so ago I was asked to develop a trading strategy for one insurance company, my client, to buy a significant stake in another one without the market noticing. It was simple; wait for the stock to under-trade its own beta and then buy it until it hit but did not exceed that beta. Thus no buttons would be pressed that would reveal a systematic buy program. As I didn’t sit on the equity desk, I never got involved in the program and I never heard how well it had worked as a month or so later a rival insurer bid outright for the prospective target, which it succeeded in securing.
In essence, algos do just that but what happens when all the children sit on the same side of the see-saw? More to the point, as I heard one person opine, you can ask a fund manager why he did something but you can’t get an explanation from a computer.