Tuesday, 18 September 2018

When markets compare with the speed of light

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Anthony Peters, Swiss Invest Strategist

Anthony Peters, Swiss Invest Strategist

Many congratulations to the scientists at CERN who have just buried Einstein’s specific theory of relativity by apparently inducing a neutrino to travel at a speed exceeding that of the speed of light. Well done chaps – but that is nothing – you should have been here on Thursday to measure the speed at which global investors were dumping any and all risk assets.

There were some pretty awful stories out of the market but really, despite the rout, volumes remained limited – which is no surprise given the fact that there were plenty of willing sellers but no buyers. I exchanged with an EM bloke on the New York open yesterday as follows:

NY: “My mkt is getting crushed”

Me: “Yours and everybody else’s”

NY: “It’s truly scary this time. We have no bid”

Me: “Much worse than the Lehman crisis – no risk capital in the banks”

NY: “Much much worse.. Basel lll has us scrambling too. To all intents and purposes we are in capital preservation mode…”

No room for heroes

We are not in a happy space. It doesn’t take a PhD in linguistics to grasp that risk and opportunity are the same thing. In markets we talk of upside and downside risk but in more common parlance, risk is downside and opportunity is upside. Politicians, especially the likes of our own Vince Cable, seem to forget that risk and opportunity are subject to the same Newtonian laws – how’s that? Two eminent physicists on one day! – in that to every force there is an equal and opposing force; destroy the ability to assume risk and you lose the desire to grasp opportunities. This year has by and large been a disaster for most investors and, as in 2008, with the year more or less lost, there is now no room for heroes. Why should there be?

On Wednesday, I lunched with an old EM dog, now active in some esoteric commodity futures trading environment. He has always been a better bear market than bull market trader but conceded that it was a miserable existence if you only made out like a bandit in the years in which your firm, your bosses and your colleagues were getting crushed but where you ended up being the great underperformer when the cash was streaming in through all orifices during bull market years.

2008, you may recall, was the year in which “kitchen sinking” was all the rage. Any asset which could be written down was written down. This is not without practical reason; if this year’s bonus is “a gonner”, then the desire to make money in the last quarter of the year is very limited. Much better to mark assets down aggressively into year-end, only to be able to then revalue them at the beginning of the New Year, thus establishing a base for the following year’s P&L and subsequent bonus.

C’est la vie, c’est la guerre, c’est la pomme de terre

Overall, the banks don’t have the excess capital which would afford them the luxury of “kitchen sinking” in the way they did in 2008 but a bit of extremely or even excessively prudent marking cannot be ruled out. From a trading desk’s perspective, damage limitation is the name of the game; just do enough not to be the guy who gets fired when the next round of redundancies hits and as most of us agree, that will be between the end of October and the middle of November.

On a technical note, I commented on how the base of an up-channel was being formed in equities. That got blown to smithereens yesterday; c’est la vie, c’est la guerre, c’est la pomme de terre.

Cameron’s rhetoric in Canada

The rhetoric against the eurozone leadership was raised in temperature yesterday when David Cameron spoke in front of the Canadian parliament and where he urged his European peers to get on with it before it is too late. What exactly they are to get on with he didn’t say, but seeing as nobody really knows what the right course of action is, how could he? He did borrow from the markets by using that worn-out analogy of kicking the can down the street and all that, but at the end of the day I think it would be disingenuous to suggest that anybody can see a comprehensive solution to the problems we are facing.

In order of priority…

However, as my old dad taught me, if you have a raft of issues to resolve, then take one after the other and in the order of priority. The problem with this crisis is that the authorities can’t agree on either the order or the priority. How do you trade or position for that situation?

Alas, it is that time of the week again. All that remains is for me to wish you and yours a happy and peaceful weekend. NASA tells us that the crashing satellite is not a problem and that you only have a one in 3,000 chance of being hit. You also have a one in 14 million chance of winning the National Lottery. With the chance of being killed by a piece of space debris being 4,600 times higher, may you put on that bet and hope to lose.                               

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