Monday, 24 September 2018

Too much info...

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Anthony Peters on conflicting data, volatility, Greece and Deutsche’s achtung on Brexit.

Trading and investing has always been about shooting at moving targets. It just appears to me as though the globalised economy has brought with it more targets, moving at greater speed and in more different directions.

Even without Greece – I still need somebody to explain to me how it can be that a country with 11 million people and a GDP of merely US$182bn has been permitted to hold the entire global market edifice to ransom – things are hard to read. For reasons which escape the capacity of my own tiny little mind, elements of the economy which are supposed to march hand-in-hand are simply failing to do so and we are all left floundering.

I suppose the most probable explanation has to be that there is now so much central bank intervention, be that through either conventional or unconventional policy action that the basic drivers of a capitalist economy, supply and demand, have been squeezed out of the equation. If capitalism isn’t working according to the rules. then we must conclude that we have something of a command economy. It is, of course, not the political command economy of the Soviet era which we are seeing. That cannot be, for modern communications and “social media” render central control impossible. The monopoly of information in the way in which Gaetano Mosca describes it in his studies on elitism in the 1930s no longer exist.

In fact, it could surely be argued that we suffer not from a lack of economic information but from a gushing, overflowing excess. Economists might not object to the deluge of data for theirs is not a precise science… but trading is. Trading bond markets might be like playing a game of 3D chess but the results, bless them, are still binary. Bonds thrive when economies are weak and equities when they are strong. Thus, to add to the confusion caused by the profusion, both markets love to highlight the bits of stats which drift their way in the most positive light for their business case. The business of investment banks, the providers of much research, is to raise capital for clients. Theirs is not to worry about the performance of investors’ portfolios, irrespective of what they might state.

Thus the volatility of the past few weeks is perhaps in some respects a function of too much information, most of which is hard to bring down to one common denominator. A soldier at war is said to suffer endless boredom, intersected by short bursts of abject panic. Traders are currently suffering much the same fate.

Olympic records

So the Greece thing rumbles on. We all know the place is broke. We all know it will never, whatever the deal which is cut looks like, be able to pay back what it owes. Finance Minister Yanis Varoufakis is telling us, ahead of the Riga summit, that a deal with the creditors is “very close”. He might have no cash but he certainly has a world class collection of cracked records.

He does seem to be getting somewhere as the ECB has apparently let it be known that it would not suspend ELA if a payment to the IMF were to be missed. That’s cross-default out of the window. That the age old basic principles of what constitutes a creditor default have been abolished by regulators by the invention of “baling in” is bad enough but now cross-default is going out of the window too. Next up will be some individual who drags his bank to the Court of Human Rights demanding the same treatment when failing to service his debts a certain sovereign borrowers expect to receive.

Auf Wiedersehen, not yet

London is in mild uproar this morning as Deutsche Bank has let it be known that it is weighing up its options, should the UK vote to exit the EU.

Am I surprised? I would be if they weren’t. I do, however, believe that a UK outside of the EU would become a better place to bank than Frankfurt and banks will go to where the regulations are least onerous. I saw the Finanzplatz Frankfurt and Europlace Paris initiatives come and go; they will no doubt try again and equally, no doubt, fail again. I must agree with the locals that Frankfurt is now a much nicer place that it was 20 years ago but, truth be told, that was not difficult. Deutsche’s Chairman. Paul Achleitner, formerly head of Goldman Sachs in Frankfurt, was the great beater of the Finanzplatz Frankfurt drum during the last initiative. I wonder whether there might be some connection there? Surely not!

That said, I remain firmly in favour of the UK remaining within the EU despite the comments made over the week-end by Lord Bamford, chairman of JCB, Britain’s largest privately held company, that it works without. Yes, we’d have to play by EU rules, whether in or out. I can easily go to work without breakfast but that does not mean that it is more pleasant. I would need some convincing that a Brexit would benefit this country or, for that matter, the EU either and,  at this point in time, Berlin and Brussels hold no financial sway over London or at least not of the sort they hold over Athens. , 

My guess is that the referendum will be taking place in 2016 and not in 2017 and my money is on us staying in, irrespective. Deutsche can hold off calling in the removal vans.

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