Category Archives: Past the Post

Cosy Christmas consensus vs the fox

According to recent press reports, 85% of all financial analysts surveyed predict another bumper year for the markets: The uncertainty surrounding QE has finally been lifted, US figures are looking rosy, Europe just isn’t a problem anymore (just SO yesterday!), geopolitical worries (i.e. wars, revolutions etc) have become the norm, anyway, so what’s the point of being concerned?  Oh yes… before we forget: The recent spike in Chinese interbank lending rates surely isn’t a serious crisis either but just a bit of a mess and how very instructive to see how efficiently the authorities are acting to hush up signs of a liquidity squeeze over the past week. Surely this situation cannot be compared with the cash crunch that caused the greatest financial crisis since the great depression.

So… we are ‘all clear’!  ‘Goldilocks’ all over again?  Well… Pinkers is not a perma bear… but certainly a perma fox… FT fox, that is.

Every year, a team of FT commentators venture their predictions for the coming year and one of the competitors is a fox in the garden of the columnist Kevin Goldstein-Jackson who gives his forecasts by consuming one of a variety of appropriately labelled pieces of chicken (the fox, that is!).  The fox was the most accurate forecaster in 2008, 2009, 2011 and 2013.  This year, the tasty food parcels ranged from minus 25% to plus 25%.  The fox picked minus 17%.

The markets hate nothing more than a cosy consensus and invariably go against it.  And, of course, … the fox’s track record speaks for itself.  Investors ignore it at their peril.

The crystal ball to be shattered?

Will common sense prevail, after all?  Well, there is hope…

Stanley Fisher, the leading candidate for vice-chair of the Federal Reserve, comments on the merits of forward guidance:

“You can’t expect the Fed to spell out what it’s going to do.  Why? Because it doesn’t know.”

Bitcoin round my neck…

In response to ‘Bit vs Brick‘:

In the final analysis, Bitcoin surely can only be a vehicle for peer-to-peer group value exchange with self-imposed penalties for breaking a given set of rules as there is no authorising body (central bank) to monitor behaviour. Putting Bitcoin into the context of ‘legal tender’ would make it the loose cannon of the financial world. You could say that we already have this situation with currency exchange but this is disciplined through political pressure if nothing else. My feeling is that all governments will baulk at any currency system which is not backed by tangible assets or a credible sponsor. Alternatively, if I’ve got it completely round my neck, we could be witnessing the emergence of a unique and sustainable global trading vehicle!

“What could possibly go wrong?”

Referring to the markets view on Fed tapering, this is the question John Authers poses in his ‘Long View’ column in this weekend’s FT. As expected, a well-balanced and coherent analysis follows, concluding that the markets and the Fed are, for now, “comfortable with each other”.

Meanwhile, Nick Kounis, head of macro research at ABN Amro, states that “investors are now switching their focus from worries about tapering to optimism because of the economic recovery.”

Clearly, investors want their cake and eat it. And yes, for now… they do seem to have it both ways.

Are the bears about to capitulate? Is sentiment about to turn? The long wait might just be coming to an end… time for Pinkers to resume the ‘In & Out’?

Bit vs Brick: The rise of the virtual currency

The stock markets as they are, as flat as the Lincolnshire countryside and with all the excitement that goes with it, the business pages have turned their attention to a subject that has left the community of eminent economists baffled and bemused: the inexorable rise of the virtual currency Bitcoin. In stark contrast to the stock markets, Bitcoin’s chart pattern is more reminiscent of the himalayan landscape and more recently the K2 ascent.

The dawn of a new era or pyramid selling scheme? The fact is we simply do not know and only time will tell. Supporters have as many valid arguments as opponents and whether or not this is just a South Sea Bubble remains to be seen.

Virtual currencies are not new, of course. In fact, the first currencies evolved from the innovation of a receipt representing grain in temple granaries in Sumer in ancient Mesopotamia around 2000BC. Despite being ‘backed’ by a tangible asset, this is, in fact, the dawn of the virtual era of trade as it implies the notion of trust between two parties. With the disappearance of the last vestiges of the gold standard in 1971 and long before the beginning of the development of the World Wide Web in 1991, the virtual currency was fully established: State promise replaced tangible asset.

Bitcoin supporters often use the above as their main thrust of argument but conveniently ignore the fact that a State comes with history and social infrastructure, reflected in the relative stability of most major western currencies.

It is perhaps unsurprising that China has now banned its financial institutions from handling Bitcoin transactions. Beijing highlighted the “risk of criminality” but is probably more concerned about the dangers of a speculative bubble. China’s central bank released a statement saying that “although there are people calling it a ‘currency’, it is not issued by a monetary authority, it does not possess the attributes of a currency such as legal repayment and enforcement abilities.” The bank also made the valid point that due to the small amount in circulation, the virtual currency is particularly vulnerable to manipulation and therefore extreme volatility. This move is at odds with recent more positive noises from other big central bankers such as Ben Bernanke who has argued that virtual currencies may have role to play provided money laundering can be prevented.

Whatever the arguments, the fact remains: the virtual currency is just as real or unreal as any other currency. Indeed, a year ago ago some people probably would have argued that it stands a higher chance of survival than the Euro. Watch this space!