IF IT GETS ANY ODDER...

I was just getting on the outside of my first see-through last night when all hell broke loose in Asia.  Three minutes after New York had effectively shut down, Sterling fell nealy10% in a blink of an eye in Hong Kong, settling at 1.1830  but with reported prints of 1.15.  Why?  no clue but the uncertain consensus was that was a glitch in certain algorithms or a "fat finger trade' (Chinese are notorious for having fat fingers) or just a computer malfunction.  After the initial shock and throughout the morning, the currency clawed its way back to the 1.23-1.24 range but never quite got back to the point from which it started its fall...in fact it was down nearly 4% and the London close.

The reason were explained as mechanicalbut the fundamentals behind the fall were reported to be the so called "Hard BREXIT" policy line of the May government which has the world all a-twitter that a British government would be so silly as to put politics before commerce irrespective of the fact that is was the politics of the Union that was the subject of the referendum not commerce.  The British people voted "out"and it is what their government is probably duty-bound to give them, but of course for any government to follow the will of its people is frowned upon in smart circles these days.  I mean, after all, how do the people know what's good for them?

Now all this is rather interesting and quite amusing if one thinks about it but today's events convey certain dark images which are worth exploring.

FX trading these days is roughly 70% by machine; the days of ringing up a broker or a trader directly are pretty much gone, which means you can trade from any place on the globe at any time...BUT, if you're going to get a move like today's in Sterling I find it hard to believe that it would not initiate in a major center for the currency...not in Hong Kong.  Then again, the timing was exquisite.  It occurred just minutes after "the book" was "passed" from New York to Hong Kong when there were no other major Asian Markets trading and therefore, by definition, liquidity was at its lowest which would of course magnify any large move in either direction.  Then, too NOTHING that happens in Hong Kong of this magnitude is to be taken as a random event but at the same time how the hell does one get apparently every trading program around to move in the same direction at almost the exact same time?  Beats me.  But folks are trying to find out and in the forefront is the Bank of England.  Stay tuned, because this wasn't random.


As for the jobs number, well of all things I got it wrong.  156,000 new buns and bedpan jobs.  A lousy number if the truth be known but one which certainly takes the pressure off the Fed but surprisingly, the equities dipped slightly and bonds did nothing except firm-up yields slightly.  While the former was viewed as a bit of a surprise, the latter might explain it.  Could it be that the bond market is simply not going to wait for central banks to reach the point of firming but is going to push them there?  There is this feeling of tension highlighted by these strange random events, seemingly unconnected but leaving the impression that something is afoot.  Then there is debate #2 this weekend.  Speaking of things getting odder...

SOMETHING'S A BIT ODD

At least it feels that way.  The pound fell to it's lowest level in thirty years today ostensibly on the announcement by Ms. may that talks will be begin in March on Brexit and the top of the agenda will be immigration.  Supposedly, this put the fear of God into all markets that the UK will be out in the cold, alone, like a poor waif straight out of Bleak House.  Of course this view overlooks the fact that the price of the pound has caused a small boomlet in the British economy through a big jump in exports and the British public seems not to give a toss about it in the first place.  Then again, we are still working off the old EU compact but if the Brits take this attitude and get thrown out.......and with that will end the export of 900,000 German motor cars to the U.K.  Dancing in the streets of Sheffield and Dagenham East to the latest Korean and Japanese pop tunes.  900,000 is a big internal market for the likes of KIA.   As my sons say to me, "Keep in real, dad."  Life is not so easy, and by the by  

     1. There is no joy in the EU as to immigration...certainly not to the extent of losing the Brits over the issue, and
     2.  Ms. May and her mob are a long way from being dumb.  Their timing, as suggested here and other places, may be perfect.

Then there's the small issue of whether the Pound is tanking on it's own or is it because of pressure from the Dollar whose country of origin is desperately trying to convince itself that higher rates are coming, as if a 1/4 of a point even in December would really make a fundamental difference.  Rubbish, but there may be a silver lining in this cloud of uncertainty that being that perhaps--just perhaps--the realization is beginning to set in that we all got this collectively wrong guys and we had better to start trying to figure out ways to get out of it before a bounty is put on the head of any Central Banker found anywhere.

Curiously, if that scenario were to be the case,the  this is the week in which to set the gears in motion.  The World Bank, IMF annual meeting is underway in Washington and whilst nothing of note ever happens in the few days that it runs  aside from the list of CAN YOU TOP THIS cocktail parties and Nirvana for The World's Oldest Profession from six bordering states (alas, Madame Claude is no longer with us hence the class formally brought to the proceedings will be absent), the rumor mill will be in full throated roar and I suspect we shall soon see if Yellen & Cie. are prepared to test the waters.

Anyway, intrigue such as this might be welcome as a replacement (for however brief) to the nonsense we have endured for so long.  Besides, a really good trader's market might come out of this thing for a while.  Good for ol' Charlie as well.  Good, hard copy we call it.  The stuff of dreams.

A LAUGH A MINUTE

Billy the Dud was at it again.  The President of the New York Fed just can't keep himself off TV to the point that if he and Charlie Schumer ever wound up in the same room when the red light went on it's 6-5 either side as to who would wind up dead.

Anyway, the guy is good for laughs.  Says he today that a rate rise in September should not be ruled out and the Fed will in no way be influenced by the upcoming election.  The guy is funnier than Jack Benny.  The most politicized Fed in history is going to raise ra...ah, hell it doesn't even deserve consideration, except by the equity boys who sold the thing off today ostensibly fearing a rate hike.  More like the entire market was pretty toppy to begin with and volume looked like a day from the 1960ies. with the Hampton's packed to the gills or so it seemed to me.

On the other hand, the real action--as predicted I might add--is in the currency markets with the short position in Sterling believed to be at a 31 year high.  The Pound closed at 1.30, up from yesterday's 1.2980 but that was due entirely to a bit of shot covering in the end.  Speculation has it at 1.26 on the high side to 1.19-20 at the low by year end.  "There are no buyers" I was told today which tells me that if you are short, get square because the downside to that position is enormous.  Mr. Carney is a bit of an unknown but the history of the Old Lady has been one of not enjoying the sight of her currency being trashed despite the value to the U.K. export business which is becoming even more important.  Further, any positive news on a variety of fronts...especially any relating to BREXIT could produce a rout and one can be practically certain that the Bank will be in no mood to stabilize things.  OK, OK I admit it: that's what I hope will happen but I don't think I'm far off on the basic premise that this is way overdone.

Anyway, it has been a good day for chuckles and happy thoughts.  Oh. by the by, the rain?  Yep, we got a bit last evening and into the night.  Ten Inches to be exact.  Not a cloud in the sky as a write this.  Welcome to the Fly-Over Zone!   Vaughn is laughing too.

AT A LOSS

The horrific acts in Brussels today are mystifying.  That humans would act in this manner toward their own kind defies rational understanding.  But rather than focus on what cannot be explained it is also remarkable to note the reactions from leaders of the world and leaders of business to these events.  The Leader of the Free World goes to a baseball game with a murderous thug who with utter contempt rejects any thought of releasing his people from a totalitarian rule even in the face of a gentle nudge from his guest.

Had Il Duce cut off his visit and immediately returned to the U.S. it would have made no difference in the continuing events to be sure, but the absolute lack of understanding what his refusal to so do in an symbolic sense is quite mind-blowing.  A member of NATO had just been attacked by a group of madmen who call themselves a nation.  It would be altogether proper for Belgium to invoke Article 5 which it still might do, but the President is so unconcerned regarding the threat he goes to a ball game messaging the world that a fifth-rate nation run by thugs is more important than a NATO ally and significantly more important to his own self-absorption.   The timing of the attack might have been influenced by the recent successes of the Belgian security forces but the loci of the assaults were not.  These were attacks not just at Belgium but at the center of European governance and the NATO command.  In the Middle of Holy Week.  It is really quite brilliant.  Europe, being torn asunder by the refugee crisis created in great part by the same terrorist organization has everything now multiplied by this act of carnage.  Already are fears being raised that this is the final nail in the coffin of the EU.  And Obama is at a ball game...in Cuba...with Raul Castro.

Perhaps I am too critical of Obama because people who should know better reacted in much the same way; the markets did nothing.  The DOW was down a bit; NASDAQ was up a bit; commodities did little if anything and bonds were of little interest.  There was one movement that was noted: the Pound was crushed.  I would be willing to speculate that in the high street betting shops the odds for BREXIT just shortened considerably and will be shorter tomorrow.  If the vote is "yes," David Cameron is gone, heavens knows what happens then and the EU is effectively finished.  I am at a loss to explain any of this.  By the way, does anyone know how the game ended?

STILL SPOOLING

This will take longer than I thought.  There are a lot of mixed messages out there and some odd things going on.  Equities moved up again today along with oil on reports from Venezuela that the Zulus and the Russian and the Qataries were planning a get-together to stabilize prices.  Like, Dude, who cares. The House of Saud announced yesterday that was a no-go and that is that.  Are there really people out there dumb enough to trade on nonsense like this?  If there are, I have a lot of work to do.

Speaking of the Zulus, there was a report today that they have informed the international investment community that they are going to service their foreign debt at whatever cost which of course leads me to believe that a cessation of payments is just around the corner as soon as Maduro is certain that he has enough stashed away somewhere to allow him to live a modest socialist life without fear of Latin Justice.  Vermont, perhaps, with Bernie Sanders, or perhaps Hollywood with Sean Penn and the gang?  Rumors have his government selling gold reserves to raise cash which could possibly be correct, as the country's reserves are dangerously low and sinking rapidly and selling gold privately is a hell of a good way to skim a bit (or a lot) off the top for soon-to-be-unemployed politicians. On a serious note, a default here could be a staggering financial event and Christmas-come-early for the legal profession as the Venezuelan government and its oil company have quite a bit of assets located in the U.S.  They have received quite a bit of support from Russia and China in the past but Russia is tapped out and the Chinese may just decide to cut their losses. After all, who needs Zulu crude?  The world is awash in oil.

And then we have the G-20 meeting in Shanghai coming up as we write where today the index just went in the tank to the extent of about 7%.  Now THAT should be a hot topic over spring rolls and some Maotai not to mention a few other things that might prove to be an embarrassment to the hosts.  Watching the dance around these talks is going to be fascinating.

Finally, Brexit.   I didn't believe this when I read it but some executive from J.P. Morgan said today that he was paying more attention to the bookmakers odds than he was to the opinion polls as to how he was going to position himself going forward in regard to Sterling.  Well I never!  There is at least one honest man left in this business.  Bet he's fired within a week.

Charlie is going to be a busy boy.

SPOOLING UP

As funerals go, it was spectacular but now that we're back, I have to start spooling up as to what has happened over the past week or so.  At first glance, not very much, but two things stand out as becoming bell weathers as to future conditions.

The first is the price of oil which took a huge jump on reports that there was to be a deal between OPEC and non-OPEC producing nations to reduce production thereby setting a floor on the price.  You might remember that it was predicted here that would not happen and sure enough, the Saudi Minister threw ice water on the report saying in no uncertain terms that such a deal was not on.  Surprisingly, oil rallied today even in the face of higher inventory numbers pulling the DOW out of a 268 point hole, but I suspect we will see it drop again shortly.  What is surprising is how everything turns on the price and how little talk there is of this market, if not being outright manipulated, is being massaged by some professional leakers of information and an all-too-gullible press who seemingly will print anything without out much verification whilst knowing that in times like this any rumor will move markets.

The second event is the becoming-more-real possibility of a British exit from the EU.  Last week, Boris Johnson, MP, Mayor of London, Impregnator of various women not including his wife, and either beloved or be-hated, announced that he was for Brexit.  Whilst commentary focused on why he broke with Cameron (hint...he wants to be the PM), little was made of the effect this stance would have.  Within days, he was brutally attacked in the Commons by Cameron and as we look today, the Pound closed at 1.39-something having traded to 1.38 earlier in the day.  Oops.

For a variety of reason, some of which are political, the Bank of England will not prop up the currency but it's continued weakness will give even greater fear to a "yes" vote for Brexit.  Boris has a following:  from an American's standpoint (he's American as well having been born in New York) he looks for all the world like a Donald Trump in the making.  That really isn't the case, however, but he surly is making life difficult for the "establishment politicians" and sending shivers up the spines of more than a few on the Continent.  Imagine, a Yank, running Britain?  And then, there was Winston Churchill.  Best watch this thing develop.   As usual, never a dull moment with the Brits.