There are dark clouds out there but day to day life carries on. One thing that previous crises has taught me is that the world is mostly made up of people who don't care. Their lives are too fraught with their own day to day concerns to change their set ways because of things happening a long way away in both space and time. 'Space' as in 'now but just not here' and 'time' as in 'it did 'happen here once, but a long time ago'. Like a fight in a street, crowds can see it happening but will walk on by minding their own business unless or until the fight turns on them. You may know things are going to be pretty shitty in the future but what do you do? Panic now and run away? Or bow to peer pressure and stay at the party drowning your fears, even if it does mean you have the biggest hangover the following day.
Or it's like falling asleep on the train after that party. You were surrounded on a packed train when you got on but you blink and find yourself alone in an empty carriage being shunted into a siding for the night. How the heck did you miss your stop, only to be left as the last one onboard with a night of cold darkness ahead of you? *For the record, throughout my life of commuting and some pretty big nights out, I have never missed my stop home.
In many ways, the markets are that train home. And we are currently at Orpington. For those of you who live in Orpington please disembark this post here, if you haven’t already at Chiselhurst. Orpington is an irregular stop on our fast line that normally evokes a low groan from non-Orpingtonians when the train stops there as, instead of whistling in and out of London, a stop at Orpington guarantees the train becomes rammed with London suburban commuters. As one old cove remarked many years ago, on opening one eye as the train drew to a halt in Orpington, “Ah, Apache country” and immediately took cover behind an FT.
Why are the markets at Orpington? Because when I look out from this packed train I see Apache country. I feel as though I am watching a movie through the window rather than an immediate reality I am actually involved in. I see visions of potential war, I see visions of EU upset. It’s beyond visions of a 1950’s Cowboy flick, it’s more an animated Dante’s inferno. But I'm behind the glass and it's warm in this train and there are lots of people around me who are also on the train and they don’t seem worried, so I’ll just stay here shall I? This is the problem with buying indices blindly. You are behind a glass wall in a carriage of self-reference and whilst you may see worries outside, as long as your peer group are with you then that reality appears far, far away.
But is the train about to empty after I return to my doze as my fellow travelers decide enough is enough and the future looks too bleak? It’s a game of chicken. No one wants to get off while it's warm and comfy but when they start there will be a rush for the doors as suddenly a phase change of opinion self-catalyses. A seed crystal in a supersaturated solution of bearishness.
So what do I see outside the window?
Russia vs West on the Syrian football pitch. I’m sorry West but your team is looking like Dad’s Army with Captain Donald Mainwaring in charge with Sergeant Boris
North Korea - they have informed the 200 foreign journalists currently there to prepare for something big on Thursday. As it’s the day of the Sun in North Korea that day I just pray that they aren’t going to make another one.
Europe - or more particularly, France. So we have a rising possibility of the final two candidates in the last vote being not Le Pen and Macron but Le Pen and Melenchon. Now as regular readers know my money has been on Fillon for a while but with the perceived rise of those previously thought not bothering to turn out now bothering to turn out and preferring Melenchon things have changed, there is suddenly the potential of having the far right and far left candidate agreeing on one thing -The EU/Euro has to change or they will take France out of it.
Yet my Fillon bet is not dead yet. The prospect of having two extremes both with anti-EU intentions could mean a resurgence in votes for my runner Fillon. Why Fillon and not Macron?
Well, Macron’s chances have just been blown out of the water. By what? I can proudly announce that the foolproof 'Economists Letter' indicator has just predicted the demise of Macron.
I last pointed to this trusty indicator a week before the US elections (here) when a panel of eminent economists endorsed Clinton. This was on the tail of the Economists Letter supporting the Brexit remain campaign. Well, they've done it again in France - see here - now my French isn’t great but reading that I think they are supporting a tasty new economic croissant that they hope Macron will bake for them.
So that is Macron out of the running, leaving the 'fallen at the first fence' Fillon, up and running again with a clear shot, backed by the moderates. Okedokey, tongue in cheek there, but this signal has been so stupefyingly accurate one has to take note.
However you want to spin this, the chances of France causing a wobble in global markets has increased rather than decreased. If France ends up with the far right or left winner then not only do OATs (French bonds) get toasted and rolled and all the other porridge puns, but Italy is going to be in a right royal mess unless it eats humble Greek pie and bows to every demand Germany makes.
So what do I buy or sell in this maelstrom? I may be late to the Party but I have sold some OATs. Selling pure Euro is not that simple. Yes, it's a wobble for the area but if France leaves the Euro does that make the Euro less or more valuable? It's a bit more German and a bit less French than it was. Which COULD be read as a stronger thing. My view of the ultimate fate of the Euro is that it will never die, instead people will gently abandon it until it becomes, like the holy grail in the Indiana Jones film, a dusty relic in a Brussels catacomb guarded by a representative of the ancient order of the Knights Euro for the ages to come. The rest of the world will move on to new shiny things. Where I will play Euro though is short against GBP. Long term GBP shorts may be suddenly squeezed by, believe it or not, the chance of the UK becoming a relatively safe haven. Now there's a thought.
So being uneasy on Euro, though it is an easy knee jerk bet, I am selling some BTPs again and buying low delta puts in things that shouldn’t be affected but will, no doubt, catch a cold from it all. Especially if I revert back to my Dante’s vision out of my train window, I am looking at SPX puts 2 and 3 months and buying gold.
After many years of decrying the goldbugs, I am buying it. And in true gold bug style, I am going to buy physical, not some ETF stashed in a warehouse a million miles away, and not tell anyone where I am stashing it. Though if I left it in my local station platform vending machine I think it would be pretty safe from ever being found.
So back to the market train. I am at Orpington and I am shuffling for the doors. I want to get off whilst it's Apache country before I get to Dante's Inferno or find myself in the marshaling yards at Folkestone, where a few old colleagues have spent a cold and miserable night comparing Folkestone to Dante's Inferno.
Final footnote - A huge thank you to those who have sponsored me to help YoungMinds. I walked 42 miles over 3 days, not big for you fit young things, but a Saharan crossing for me. Should you be able to make a late contribution to try to get me to my target I have left the page open at https://www.justgiving.com/fundraising/Polemic-Paine
A contribution from an Orpington reader would make my day. though is now very unlikely.