Monday, June 25, 2012

What Do You Call An Intentional Mistake?

Everyone makes mistakes. Perhaps, though, one would be forgiven for wondering if not some mistakes are more intentional than others, such as Gavyn Davies latest ooops highlighted by CB over at IBEX Salad, who stands out (in my opinion) by maintaining a detached objectivity in his attempts to keep the debate on the proverbial "straight-and-narrow". (Full disclosure: I am quite certain that Mr CB is not employed nor receives any remuneration from any hedge fund, HF affiliate, bent consultancy or research house, investment organization, think-tank or EU or Spanish or regional governmental body for his writing, nor does he manage a hedge fund that might benefit from his writing).

Such blatant tomfoolery of course makes one wonder. Like the cabbies and shoeshine boys who were offering stock tips in the late 1920s, seemingly everyone has now become an expert on the Eurozone and its near certain breakup.  Indeed it is hard to find anyone without a categorical opinion about the Euro, its flaws, its bankruptcy, insolvency right down to the psychological and technical factors that will insure its demise. The BBC this morning, in yet another example, interviewed a chap specifically to discuss Target-2 imbalances - one who confessed that he only recently began looking at the mechanism after his girlfriend asked him about it, and he couldn't answer her question, a Sunday-league expert whose lack of depth was matched only by his inquisitor.

Lightweight-ism, and popular overconfidence in their beliefs and opinions of pseudo-experts, however, are not the only danger for one trying to make sense of the world. There is a whole microcosm of newsletter-writers, faux- economists, and indeed market Cassandras churning out endless so-called, self-professed"research" (as opposed to this Cassandra's mostly satirical musings) all with plausibly convincing high-brow-sounding organizational names (though not ones you've ever heard of), dubious anonymous backgrounds, headlining partial-to--non-truths, manufacturing tales of doom on the basis of amateurishly-interpreted "facts" at best, and willful fabrications, at worst. This is not to say, or ignore the very real issues facing the Eurozone (as well as the US and Japan), the problems of the periphery in particular, and the potential for bad accidents and grossly negligent policy solutions in the future. But one should be highly mindful of probable charlatans serving up provocative suicide-inducing platters of impending doom, who are also trying to empty your pockets of newsletter subscriptions fees, trading-system advisory recommendation fees, or induce you to purchase (from them, or their revenue-generating affiliates) over-premiumed physical precious metals, brokerage services, or similar, or in the extreme, off-the-grid household solutions including a large supply of freeze-dried food to survive the impending financial armageddon.

Equally, if not more treacherous for those trying to make sense out of The Continent's predicament are the notorious professional investors (and their consultant/advisor/economists) unending categorical prognostications, known in English as, talking their book. They of course will term this as "putting their money" (or rather their investors' money) "where their mouth is". Here, I am sympathetic, since an opinion without a position lacks conviction, though one must ascertain whether the position is the chicken or the egg. My issue, and the caveat, here is that the *blag* is most frequently NOT from what one might term the ultimate asset allocating investor, but from entities whose business it is to position a trade, and profit from it in as short-a-line and time-frame as possible. Most often, they have no veritable political policy interest either (though money they donate to think-tanks or university chairs they endow may feel obliged to publish accordingly). The backdrop is not the the Econ-101 arena one imagines of a perfect market composed of near-infinite competitive-but-small participants. This is the back room fight-club where anything goes from investor collusion, to misdirection and misinformation, paying for column inches and other bully-pulpits, to downright *blagging* to achieve the immediate goal of the trade's objective since For "All's fair in love an war" according to J. Lyly's 1578 proverb, is it not?  The objective is to generate price moves and feedback-oriented, i.e. cause investor action getting others to further move the price to provide the objective as well as the exit. Mr Soros quite literally wrote the book on this, an integral part of reflexivity, a term he coined, and one must assume Mr Soros is not financially uninterested in the outcome.      

Teasing out "truth" in the face of rhetoric is notoriously difficult. And often, excepting policymakers and ordinary citizens impacted by what might seem like vigilantism, it is only academic, since price is the only reality for most market participants be they spec traders or investors. Yet one must try to distill "the trade"and the *blag* from amongst the cacophony , because herein lies the rub for those going along for the ride: the fat tail  on "the trade" (the market equivalent of a sharp stick in the eye) typically lies on the opposite side as the cacophony.

I don't know whether the Euro will survive. I (along with its architects) see its warts and faults. What I do think with more conviction is that one should be watchful positioning upon half-truths, and twisted info that appears directed towards serving the parochial self-interest of certain pools trading capital, not because they may not be right in the long-term (they may!) and because these are likely NOT your interests, given the relative location of the fat tail. Caveat emptor indeed!


Rich L said...

Assuming that nobody knows anything about the future, and that everyone is scared about Europe, it seems to me a fairly safe generalization that there is a risk spread in all of the junk Euro assets. If so, it is most likely that the risk, plus a spread, is already priced into the market.

Who ends up paying remains to be seen, I guess. But the damage writ large is already done. I don't know anyone who is excessively exposed to risk. How can the Euro crisis be so important to markets given the current positioning?

Woland said...

Hello C:

My opinion ( FWIW = ??)
Something big is afoot, and it is contained within a
document entitled The Thomasso Paddoa Schippoa
Report. When the true elder statesmen of Europe,
Jacques Delors and Helmut Kohl, emerge from the
wings to center stage, via the sponsorship of the
proposals contained therein, it should be taken
very seriously. They command great respect, and
can take some of the heat off the present office
holders. You can read it all over at Eurointelligence.