The End Of The Land Of The Free

| About: The United (USO)

Mrs May has been top of the headlines, as The Economist cover once again proved a negative indicator.

The weekend saw leaks of her statement with screams of terror from the usual sources as they sherry picked (like "cherry picked," but in otherwise gentile front parlours) the headlines pointing towards a harder Brexit. With this came the knee-jerk narrative to sell GBP (NYSEARCA:FXB), because that's what the simple programming that is currently being applied demands. This made two assumptions. First, that May really is going to sacrifice all ties, and second, that the result of a hard Brexit means GBP should be yet weaker (weaker than the 15-20% it has already fallen). GBP fell to 1.19-something on Asia open, only to recover and then languish around 1.2040-ish for the rest of the day. Tuesday morning's commentary was that she has leaked her speech to prevent a market meltdown. But the day saw GBP rally 3% to levels higher than where it was on Friday. What a complete and utter waste of time listening to the garbage on the wires. The only headline worth its salt would be...


... but you just don't see that.

I have come to the simple conclusion that the reason the commentary is so wrong is because very, very few of those commenting actually trade the thing. The reason prices move is because people buy or sell in differing ratios, upsetting the equilibrium of the assumed fair price. The reasons why people trade are hugely complex. The drivers behind individual trading decisions can vary massively. Commentators cannot accurately define why GBP is lower or higher unless they have actually spoken to a person who has traded it. Here I am not talking about an FX salesperson who has transacted a trade for someone else, nor even a spot FX trader (who manages flow, but rarely knows the "why"), but about the fund manager, central bank, sovereign wealth fund manager, hedge fund or real money PM, or collection of electrons in an algorithm who actually decided to swing the bat. And funnily enough, practically none of them will ever: a) want to tell you; b) want the fact that they have traded to be known in the first place.

False news, bullshit, selective reporting to fit agendas and so on. It's a theme throughout politics, markets, social media and, currently, life in general. Why is it so? Because we are awash with free stuff. Said to be free, but not free. The quality of free stuff is currently so low that I am predicting a backlash against "free"*. The easiest form of marketing includes the words "new" and "free," but "free" has moved on from "free" apps just stealing all your personal data to data that is completely fallacious. Which leads me to believe that the days of "free" are near an end. It has started already with many once-free publications going subscription-only and many good bloggers either trying to charge, throwing in the towel or moving to a broader platform that provides an income (e.g. the excellent Macro Man).

Information has a hierarchy of value. Untruth, Opinion, Truth. And as with any commodity, the value of which will be defined by supply and demand. As scarcity drives up prices, so it will be that the price consumers are willing to pay for truth will increase. I am now willing to pay for verified news that comes with a guarantee rather than a disclaimer.

Ok rant over, back to financial markets.

My mythical turn date is effectively upon us. The first option expiries of the year combined with Trump's inauguration speech. As expiries are tomorrow, I have taken the liberty of front-running the Trump speech by putting on a selection of trend reversal positions. Mostly through options, as volatility has been crushed. Apart from obstinate dabbles in GBP, I have left FX alone, as the dollar has already turned (I do love the EUR/USD 1.1000 magnet, it's such a parity-party pooper). In equity indices, the FTSE has been in my bag for a few days now, but I have added DAX puts, spread over the next 4 months, to back my views that although Europe has growth, growth is actually going to be a problem with regard to arguments over ECB policy. And for a narrative twist, I am going to invoke my first rule of narrative: "Change the subject before they notice you are wrong". So if I am looking for a turn in markets against the recent narrative, then rather than deny the narrative, the subject will change. Wrong on the market responses to Brexit news? Wrong on market responses to Trump? Then change the subject and Europe is there ready, as it's been out of the limelight since Italy didn't last blow up.

Emerging markets is where I really should be playing, as they have been doing so well, but I am loath to. I'm more willing to wear a downdraft there. My bête noire of TRY is still proving that political upheaval and fundamental realignment of the political seismic plates swamps charts, oversoldness and historical value measures. The only EM counter-trend trade I have put on is long Mexico ETFs.

Oil is a toughie here. A downdraft in risk should see oil lower too. Add that to the well noted positional excesses, and I should really be getting out. But I am still hanging on in there with dodgy oil stocks. I know there a hundred reasons to sell it, but I'm going to hang on for $65. Commodities in general are frothy, but I am looking at them returning to favour as part of the super-cycle.

I only have one comment on the World Economic Forum - the World Economic Forum is now like the Glastonbury festival, where those who go, go to be seen to be going. The headline acts are past their prime; their old songs are nostalgic, but their new ones are solely self-indulgent; but, more importantly, it isn't the performers who set the trends these days - it's the crowd.

*I include this post as an example of free stuff which is opinion rather than truth and has little value or cannot be verified as true. Read the disclaimer!

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