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 meltdown, 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 coolly 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 and 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 (NASDAQ:FB), 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 nothing 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 isn't 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.