A statistical reminder of a world that isn’t there….
Mint – Bill Blain’s Morning Porridge October 30 2012
Hurricane Sandy dominates the headlines this morning. With a
major leg of the global financial system shut through today – and perhaps
longer as the damage to New York’s infrastructure is assessed and repaired -
the challenge is how quickly will markets adapt?
Judging from the number of our contacts red-dotted on
Bloomberg this morning it would seem the European markets are taking the view
thin illiquid markets are an inevitable consequence of the storm.
So another nothing day in prospect? It really shouldn’t
matter NY is closed. There are few assets that can’t trade, although markets
will be woefully illiquid for a day or so! The fact global markets are
effectively “red-dotted” (not-in) demonstrates the chronic apathy markets are
suffering at the moment. Give folk an excuse not to do anything, and they will
grab it. If someone says “take it easy”, lazy markets take it twice!
But when other folk are lazy – that’s the time to be busy.
If New York is going to be closed for longer than a day or so, markets will
very very quickly adapt and find work-arounds. You might as well be ahead of
it. Tragic what’s going on in the US, but today is just another day – and no
reason we shouldn’t play it to the hilt!
So what to look forward to? Yesterday saw wobbles on
crashing Spain retail spending and Italy politics, but get-over it. Today
European consumer confidence is unlikely to be any more positive than the
miserable -25.6 we saw last month. Otherwise it’s going to more posturing
around how Angela and her international agency chums will close the Greece
story in a voter acceptable way (that’s German voters… Greeks..? please… focus
on what matters), worries about Spain and the regions, although I was delighted
to read the Czech president describe EU Banking Union plans as nonsense.
Globally, we’ve had more surprise easing in Israel (although
with strict lending caveats), India (cutting reserve requirements and thus
putting more money into the market), and Japan being very aggressive expanding
the balance sheet and an “unlimited” bank lending programme. It continues
the globalisation of easier policy – global growth at all costs? Should be
better news for stocks!
It’s black bag day at UBS this morning. The fact the stock
rallied 7% on the fact it’s about to eliminate 10k jobs at its investment
banking division says it all. The rump parts of fixed income that will be left
will be there to service UBS private wealth and asset management businesses.
There aren’t a lot of names still standing at the forefront of global markets –
Barclays doing a retreat to retail and commercial banking, the French banks
circling their domestic wagons, while DB’s results this morning were trading
positive, they didn’t speak of easy conditions.
So, five years after the crash, the international markets
are not vanishing in an ever deeper cataclysmic market shock, but sinking
slowly into oblivion. That’s desperately bad news for markets as chronic
illiquidity becomes more and more pronounced as the pool of players and
liquidity providers declines. Why is it happening? What changed? And what are
the consequences?
Put the blame squarely on over aggressive regulation. Since
the 2007 crisis kicked off we’ve seen an unprecedented rise in the volume of
reactive regulation. Whether it’s telling banks what kind of “liquid assets”
they should hold, or half-arsed redefinitions of what capital they should hold,
the cumulative effect of over-regulation has been felt most in the form of
thinner less efficient markets. And while thin markets pay the immediate
electoral dividend of being seen to punish overpaid bankers, the long-term
unintended consequences of less efficient markets are worse pension provision,
and society that is ultimately poorer as a result. We know all this.
But let me dwell on the lastest example of regulation for no
discernible purpose…. When you wake up Thursday morning, the new EU
Short-Selling Regulations will have kicked in and become law.
Now I’m desperately trying to understand why
short-selling should be controlled – going long or short are both perfectly
valid expressions of confidence in any asset? I am aware studies have found
that if corporates knew who was shorting their stock, they’d probably refuse to
meet them. But the only reason I can think of for European governments wanting
to outlaw naked CDS shorts or to demand reporting of all other short positions,
is to give them Orwellian information on who aren’t believers. If you are short
sovereign CDS then you are definitionally their enemy. That is somewhat scary.
I remind you, this new legislation kicks off Thursday. Yet
at an excellent conference arranged by Bloomberg yesterday I heard expert after
expert describe the “Omnishambles” that is accompanying the new regulation. The
experts said it was clear regulators have no idea what they are regulating –
they didn’t understand CDS, that the definitions to accompany the new rules
were confused, that national regulators still didn’t have reporting systems in
place and even the penalties for non-compliance are unclear. In
otherwords, a complete pointless cluster****.
Meanwhile, the banks, funds and brokers active in the
markets are having to spend a fortune on regulatory advice, reporting systems
and otherwise unproductive staff time in meeting the new rules. A whole new
regulatory advisory industry has spun up in the wake of the new “rules”.
And the economic effect of the shorting rules will be to
make it more difficult and onerous for investors to hedge positions, to realise
market views or execute trading strategy. Nothing in the new rules will make
anyone richer or improving anyone’s pension provision. One lawyer whispered in
my ear he had a very complex and opaque route by which I would be able to short
CDS – but I’m sure no one would ever even think for a moment about going down
deeply complex trading strategies just to execute a simple short. (Any US
readers??? Yep.. Sarcasm alert!)
The only folk who will benefit will be the regulators (who
will get their twisted sense of market power) and the information they report
back to their sovereign overlords clyping*
on who is short European sovereigns. That truly scares me. Who said markets
were fun?
* clype: Scottish dialect,
verb, to tell tales; also a noun, clype, clyper or clypie, teller of tales
Comments
A statistical reminder of a world that isn’t there….
Mint – Bill Blain’s Morning Porridge October 30 2012
Hurricane Sandy dominates the headlines this morning. With a
major leg of the global financial system shut through today – and perhaps
longer as the damage to New York’s infrastructure is assessed and repaired -
the challenge is how quickly will markets adapt?
Judging from the number of our contacts red-dotted on
Bloomberg this morning it would seem the European markets are taking the view
thin illiquid markets are an inevitable consequence of the storm.
So another nothing day in prospect? It really shouldn’t
matter NY is closed. There are few assets that can’t trade, although markets
will be woefully illiquid for a day or so! The fact global markets are
effectively “red-dotted” (not-in) demonstrates the chronic apathy markets are
suffering at the moment. Give folk an excuse not to do anything, and they will
grab it. If someone says “take it easy”, lazy markets take it twice!
A statistical reminder of a world that isn’t there….
Mint – Bill Blain’s Morning Porridge October 30 2012
Hurricane Sandy dominates the headlines this morning. With a major leg of the global financial system shut through today – and perhaps longer as the damage to New York’s infrastructure is assessed and repaired - the challenge is how quickly will markets adapt?
Judging from the number of our contacts red-dotted on Bloomberg this morning it would seem the European markets are taking the view thin illiquid markets are an inevitable consequence of the storm.
So another nothing day in prospect? It really shouldn’t matter NY is closed. There are few assets that can’t trade, although markets will be woefully illiquid for a day or so! The fact global markets are effectively “red-dotted” (not-in) demonstrates the chronic apathy markets are suffering at the moment. Give folk an excuse not to do anything, and they will grab it. If someone says “take it easy”, lazy markets take it twice!
So what to look forward to? Yesterday saw wobbles on crashing Spain retail spending and Italy politics, but get-over it. Today European consumer confidence is unlikely to be any more positive than the miserable -25.6 we saw last month. Otherwise it’s going to more posturing around how Angela and her international agency chums will close the Greece story in a voter acceptable way (that’s German voters… Greeks..? please… focus on what matters), worries about Spain and the regions, although I was delighted to read the Czech president describe EU Banking Union plans as nonsense.
Globally, we’ve had more surprise easing in Israel (although with strict lending caveats), India (cutting reserve requirements and thus putting more money into the market), and Japan being very aggressive expanding the balance sheet and an “unlimited” bank lending programme. It continues the globalisation of easier policy – global growth at all costs? Should be better news for stocks!
It’s black bag day at UBS this morning. The fact the stock rallied 7% on the fact it’s about to eliminate 10k jobs at its investment banking division says it all. The rump parts of fixed income that will be left will be there to service UBS private wealth and asset management businesses. There aren’t a lot of names still standing at the forefront of global markets – Barclays doing a retreat to retail and commercial banking, the French banks circling their domestic wagons, while DB’s results this morning were trading positive, they didn’t speak of easy conditions.
So, five years after the crash, the international markets are not vanishing in an ever deeper cataclysmic market shock, but sinking slowly into oblivion. That’s desperately bad news for markets as chronic illiquidity becomes more and more pronounced as the pool of players and liquidity providers declines. Why is it happening? What changed? And what are the consequences?
Put the blame squarely on over aggressive regulation. Since the 2007 crisis kicked off we’ve seen an unprecedented rise in the volume of reactive regulation. Whether it’s telling banks what kind of “liquid assets” they should hold, or half-arsed redefinitions of what capital they should hold, the cumulative effect of over-regulation has been felt most in the form of thinner less efficient markets. And while thin markets pay the immediate electoral dividend of being seen to punish overpaid bankers, the long-term unintended consequences of less efficient markets are worse pension provision, and society that is ultimately poorer as a result. We know all this.
But let me dwell on the lastest example of regulation for no discernible purpose…. When you wake up Thursday morning, the new EU Short-Selling Regulations will have kicked in and become law.
Now I’m desperately trying to understand why short-selling should be controlled – going long or short are both perfectly valid expressions of confidence in any asset? I am aware studies have found that if corporates knew who was shorting their stock, they’d probably refuse to meet them. But the only reason I can think of for European governments wanting to outlaw naked CDS shorts or to demand reporting of all other short positions, is to give them Orwellian information on who aren’t believers. If you are short sovereign CDS then you are definitionally their enemy. That is somewhat scary.
I remind you, this new legislation kicks off Thursday. Yet at an excellent conference arranged by Bloomberg yesterday I heard expert after expert describe the “Omnishambles” that is accompanying the new regulation. The experts said it was clear regulators have no idea what they are regulating – they didn’t understand CDS, that the definitions to accompany the new rules were confused, that national regulators still didn’t have reporting systems in place and even the penalties for non-compliance are unclear. In otherwords, a complete pointless cluster****.
Meanwhile, the banks, funds and brokers active in the markets are having to spend a fortune on regulatory advice, reporting systems and otherwise unproductive staff time in meeting the new rules. A whole new regulatory advisory industry has spun up in the wake of the new “rules”.
And the economic effect of the shorting rules will be to make it more difficult and onerous for investors to hedge positions, to realise market views or execute trading strategy. Nothing in the new rules will make anyone richer or improving anyone’s pension provision. One lawyer whispered in my ear he had a very complex and opaque route by which I would be able to short CDS – but I’m sure no one would ever even think for a moment about going down deeply complex trading strategies just to execute a simple short. (Any US readers??? Yep.. Sarcasm alert!)
The only folk who will benefit will be the regulators (who will get their twisted sense of market power) and the information they report back to their sovereign overlords clyping* on who is short European sovereigns. That truly scares me. Who said markets were fun?
Out of time.
0207 786 3877
[email protected]
[email protected]
* clype: Scottish dialect, verb, to tell tales; also a noun, clype, clyper or clypie, teller of tales
Posted at 10:39 AM in News & Comment | Permalink