Market Insights

Which Labour MPs will vote Conservative?

Attention has moved from the 40-80 Conservative MPs that Steve Baker claims can kill the government, to the 30-40 Labour MPs that Downing Street hope can let its deal survive. The Times and the FT both run stories today on these so-called Labour rebels.

The headline is misleading. The quotes from Labour MPs show just how uncertain they are over how they will vote. They fear deselection. They hope Corbyn will change. They will vote down the government only to vote with them later. Listen below for our 3 minute wrap with more details:

 

To determine how Labour MPs will shake down, we refer you back to our Labour MP breakdown:

And our table of support for each Brexit outcome:

If you would like more detail on how we calculated these figures, or to run other configurations, please let us know.

The Iron May-dy

That was intense!

In case you missed it, Theresa May just spoke on how she believed Brexit negotiations went with the EU 27…

(If looks could kill…)

What does it mean? What can we expect? Does anything change?

We know it is Friday so do not expect you to read anything now, so BlondeMoney has put together a quick podcast discussion between the team. It is under 5 minutes so you can even drink a glass of red while you listen!

 

As a weekend treat, here is EU’s Donald Tusk enjoying the EU summit…

You Read It Here First…

The summer is almost over, and you, Dear Reader, are ready. You know that the market is primed for self-destruction, wound up into an unbalanced frenzy by Perma QE and the passive money momentum machine. And you know that it takes only one match to light the fuse. You know we will see Black Swan price action on White Swan events. So what's the event going to be?

One word, 6 letters, 2 syllables. Sounds like a Latin past participle for the verb "Brexere", meaning rupture with one's closest trading partner.

But just in case you weren . . .

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In Memoriam

Today I learnt of the passing of the man who taught me all about the markets. And a good few things about life too. Forgive me then for a moment to remember him.

Armed with a Classics degree from Cambridge, a dramatic flourish of melancholy from Northern Ireland, and a handy bit of know-how from amateur boxing, Ed had charisma, knowledge and tenacity in spades. We met just after September 11th 2001, at Merrill Lynch. I had just started as a graduate, plunged into the foreign exchange desk in the midst of recession, and the omnipresent Bin-Laden-induced threat of War. Ed had that memory seared upon him more than most, having been on an introductory trip to the ML NYC office and seeing the second plane crash into the towers.

During the mayhem, he revealed his true calling: teaching. He was the only person who sat down with me to give me a structure to this new crazy day that kicked off at 7am. “Write down the opening levels when you walk in”, he urged, “and a few bullet points from the morning meeting… that will get you through the day without looking like an arse”.

Looking like an arse was the usual state of affairs for a graduate trainee. He did his best to help me, not only to understand what was going on, but also to get used to an environment where failure meant money losses or even job losses. That meant no kid gloves, for which I am eternally grateful. You’ve never really experienced humiliation until the dealing desk turns round and looks at you when you take your first phone trade, and instead of “Mine” or “Yours”, you meekly tell the trader “His?”.

No-one laughed more than Ed, who thumped me on the back and told me not to f**k it up next time.

That was Rule No.1 of course: “Don’t F**k it Up”.
Rule no.2 was inevitably, “Never forget rule no.1”.

Fortunately he didn’t let me sink or swim too far on my own in those early days. He would step in if I found myself out of my depth, but never by patronising me. He would encourage me if I did something well, but never by promoting arrogance. A few months in, he called into the desk for a market round-up. I seriously reeled off some information about non-farm payrolls, technical levels and the Euro hitting parity against the Dollar. Silence. He chuckled. One of his excellent cigarette-and-alcohol-stained chuckles. I braced for the inevitable criticism. He simply said, “F**k me, you almost sound like a real salesperson, praise the f**king Lord we are making something of you my girl!”.

Having passed the test, I could join the various client events and drinking sessions in our nearest pub, the Viaduct. (Why they literally built an investment bank on top of a pub, I’ll never know). I was part of the gang. It didn’t matter that I had a cleavage, Ed just cared that I had a brain. For a team of 40 people with only 4 women in it, this was a blessed relief.

He and his Northern Irish buddy, the Ballymena Academy boys, were the only men who didn’t treat me any differently because I was a woman. They watched out for me. They wanted me to succeed.

In latter years Ed would tell me how proud he was of the part he played in my success. He could never, unfortunately, be happy with his own.

He was the cleverest man I ever worked with. The most charismatic with clients. The smartest about trades. The most humble. The most honest. Someone who I believed in as much as he believed in me. If only he could have believed more in himself.

The demons chase us all. If we are lucky, we can escape them or at least shove them where they haunt us least. For the man we called Little Old Edmundo, it proved an ongoing battle that ultimately ended only in the harshest form of peace.

He was no angel. The greatest teachers rarely are. It takes an understanding of both darkness and light to teach someone how to navigate the path ahead. We argued, we cried, we shouted, we hugged, we laughed. We learned. And what could be a greater gift in life than that?

— RIP My Friend —

It’s Always Darkest Before…

We here at BlondeMoney try to neither be optimistic fools nor fatalistic doom-mongers. Either could garner us more headlines but neither is useful in a world of cold-headed investment decisions. You know by now what’s going to cause the next crisis, so how about a dose of good cheer. It’s always darkest before the dawn.

1 Euphoric Equities

The Nasdaq hit a new all-time high and the FANGs are back baby yeah! Here’s the FANG+ index, on which you can trade futures and options, which just about says it all:

The rally was allegedly due to Goldmans upgrading Tech to overweight; we prefer to think of it as Momentum Is The New Safe Haven. So let’s not mistake this euphoria for an all-round “coast is clear” risk-on rally.

2 EM Excited

It will look like that, however, because we are now all so embedded in the game of prices telling us the story. Emerging Markets might just get the buy-the-dip boost they’re looking for, with the astonishing timing that Argentina has been upgraded back into EM status, from mere Frontier, by MSCI. It’s been in the Frontier for almost a decade and despite its recent woes, MSCI still decided to grant it the full-on emerging market accolade. Where it goes from here will be a fascinating test of our hypothesis: inclusion into an index creates a full-on demand for a country’s assets from the passive index-trackers. Will their flows dominate the active discretionary guys who still fear for Argentina’s health?

Even more excitingly for our hypothesis, MSCI have retained the caveat that they can kick Argentina out again:

‘However, in light of the most recent events impacting the country’s foreign exchange situation, MSCI also clarifies that it would review its reclassification decision were the Argentinian authorities to introduce any sort of market accessibility restrictions, such as capital or foreign exchange controls.’

If that were to happen, then the passive outflows would join in with active outflows, creating an automatic increase in selling on assets already under pressure. Just the kind of feedback loop we hypothesize that passive investments embed into the system.

3 ECB Easing

Our favourite Irish farmer-investor, @LorcanRK, flagged up the key points from the ECB officials’ leaked story to Bloomberg yesterday. The ECB “could consider relaxing the rules on buying” for its reinvestments. As they have a 3 month autopilot right now, this means they could pause and build up a warchest of cash before plunging it back into the market. It certainly gives them flexibility to smooth out any wobbles in the market once they pull back from QE proper. And – Draghi must love this – it could be done any time, without a monetary policy meeting. No wonder Mario called this “an important decision… not a marginal one at all“. It’s his get-out-of-jail free card as he goes into his final innings as President. But it also means some permaQE could be a little bit more “perma” than we first thought.

4 Brexit Back In Its Box

These parliamentary votes of the past two weeks were supposed to deliver high drama. Government defeats, battles, bish bash bosh. In the end, neither Brexiteer nor Remainer rebelled, the government persists, and the boil has yet to be lanced. Is it possible now that Theresa, like The Donald, has become an accidental master of three-dimensional political chess? That the UK will end up with the ideal negotiating outcome where nobody is pleased but those displeased are too divided to do anything about it? If so, then market expectations of a muddle through will be the right one.

This chimes in with the general euphoria we have so far described. It’s a funny kind of euphoria; the kind that comes from the absence of dark, rather than the presence of light.

As one of our clients says, it’s always darkest before… it gets really dark.