As Dorothy said , there’s no place like home.

 

In the week that we saw the anniversary of Donald Trump’s inauguration being “celebrated “, I use the word cautiously, by a government shutdown the first results of the structural changes to the US tax regime which he has introduced were seen. The talked about repatriation of $250 billion by Apple and the proposed new building and employment of 20,000 by the exact same company must be music to his ears. Whilst this was being discussed Napoleon Macron was offering a tapestry celebrating a “French”* defeat of the British 950 years ago as a token of goodwill whilst he was extracting £44bln from the UK. Here I think lies an interesting insight in the difference of the two power blocks of the US and Europe.

Of course Macron is not an appointed leader of Europe , except by himself, but this latter day little Napoleon is taking every opportunity to fill the vacuum left by Frau Merkel’s travails and appearing as the strong leader of a united Europe. I use the phrase little Napoleon in its British sense that of a jumped up person in authority and not as a compliment to Macron or indeed his attempt at a Napoleonic hairstyle – brushing over a bald pate is always a fashion faux pas. Personally I fail to see why refugees based in the La Belle France are the UK’s financial responsibility but I suspect I have been controversial enough in my last couple of columns to avoid entering into this discussion but it did appear to me to be a classic case of a grand gesture concealing a more important issue.

Unlike in The Wizard in The Wizard of Oz , this is not a deliberate diversionary tactic by Macron but a coincidence . Politically Europe is weak, again, and will remain so until the leadership of Germany is decided and Europe’s own internal struggles are resolved but the larger picture of how Europe is faring in the world is more interesting from a trading point of view. Apple’s proposed payment of  $38Bln in taxes at home  and its impact on the US has wider implications than first thought and they will be the first of many corporates to go home to daddy Trump. I have been trying to work through the implications firstly for the Dollar and secondly for treasuries. The number widely discussed is two Trillion Dollars which even by FX markets with daily volumes of around five Trillion is a grown up number and on its own would lead to Dollar strength but the more interesting markets will be treasuries and stocks.

As these funds are moved around the must surely be an impact on treasuries of all shapes and sizes , for example were the funds held in local bonds denominated in say Euros before repatriation? And will the movement cause local bonds to suffer whilst US Treasuries get bought. Whilst the longer end of the curve is flattened by this potential buying will the impact of the job creation that Trump believes will occur, be inflationary and force up short term rates, as well as the Stock Market? All of a sudden we have 2 year against 10 year yield curve flattening further and possibly inverting whilst at the same the Vix has been popping back up. As I wrote towards the back end of last year an inverted yield curve has foreshadowed the last seven recessions.

We have almost certainly already seen some of the impact of the tax cuts on the markets and the stock market remains buoyant partially because of this but it is not only Dollars which are flooding  back to the US we are also seeing the same happen, albeit for different reasons, with some financial instruments moving back across the Atlantic. The move is not entirely Trump inspired although his hatred of red tape, some would say detail, does make for a more benign trading environment than Europe is bent on creating. The introduction of Mifid 2, the worst sequel since Home Alone 2, has made not only ICE relocate some 245 Oil contracts back to the US it has also made the regulator in London give dispensation in terms of breathing space to the LME and ICE and for 30 months. It is likely that more trading cross the Atlantic as banks and brokers seek to transact in more sensibly regulated environment and Brexit, which may excuse the UK from complying from some of the regulation will come too late to prevent these flows from London. As an ex professional participant in the markets it brings a wry smile to my face that Europe is more worried whether a forward Foreign exchange contact has a fixed end date and as such is a hedge, or not, than any pretence at oversight or regulation on the growing Crypto Currency markets.

So there we have it. Europe’s penchant for regulatory interference is starting to pinch whilst Macron and his cronies ignore Toto and celebrate the hollow victory of the first Bayeux  Tapestry/ Euro cross America gets on with business and all the while the CryptoKids play out their unregulated games…

GINA MILLER

Richard Matthews, who began his career in 1973, is a former trader-broker in the London money, futures and foreign exchange markets. Twitter @dickiematthews5

This column is the opinion of the author and does not necessarily reflect the opinion of LiveSquawk.

 

 

The day the Circus Train came to town

 

Trains. I’ve been thinking about trains this last week. As I get older I increasingly yearn for the simpler life of my youth when TV shows were basic moral lessons dressed as exotic adventures. These were easier to present in the early 1960’s as the age of the jet set was just dawning and travel for holidays tended to be domestic and local. Oftentimes the series were based on Cowboys and Indians (I refuse to say Cowboy and Native Americans…)really just travelogues into the great American West. My two favourites were Rin Tin Tin , probably as it’s co-star was a dog and Circus Boy . Circus Boy featured an orphaned child Corky ( played by Micky Dolenz who later found fame as a drummer in The Monkees ). I loved Circus Boy for the romance of a train pulling into a new town each week, I begged my Father to get me the replica toy train and I can still visualise the yellow that it was decorated in.

The Trump Circus rolled into Washington a year ago to less celebration than Corky received and the reverberations have been felt far and wide. The Liberal press , a term which is almost ironic, see Trump as a cross between Joey the Clown and a particularly cruel ringmaster – a sort of evil clown as portrayed in the new horror movie called “It”. Is this fair though and do the people in the “fly over States” care what the press think? Probably not. With unemployment  at 4.1%  and the lowest figure since 1972 , 6.8%, for African Americans. Still distressingly high but better. The two coastal regions of America consistently view Trump as distasteful and appear baffled that a man with such crude oratory skills is the President . Looking back a year though he has delivered .

From , let us be honest , a very shaky start he has put his stamp on the presidency and certainly speaks his mind. OK so The Wall has not been built , much to the dismay of Mexican construction companies , but it does appear that the swamp has been drained a little and he now has the semblance of a stable government surrounding him. The ( Main Stream ?) media has it in for Trump in the same manner that they had it in for Reagan , I for one , am old enough to remember the insults at the ”doddery old actor “ and yet look at his achievements, the falling of the Berlin Wall for example, and how he is now revered? Let’s be blunt Trump is not the most erudite President to hold office and does not have Obama’s slick way with words but we knew that , right ? From his campaign trail we saw what we were going to get so no surprise there and maybe the main stream media are put out as his frequent tweets restrict their output.

The great swathe of America that has been forgotten  the rust belt , the flyover states or  whatever you wish to call them do not talk with silver tongues and certainly will have had enough of being patronised by the likes of Obama and The Clintons. Who can blame them? As an old friend and trading partner of mine, Tony LaPorta from Chicago said “ I aint no redneck but he talks my language “Anyone who has worked on a trading floor will be fully aware of the use of salty language and will not be shocked by it. Indeed Obama admitted that swearing in the Oval office was not necessarily a bad thing. The latest furores surrounding Trump, are in a way, perfect examples of him saying the truth and not dressing it up . Many countries that receive foreign aid are indeed shitholes and it’s not racist to say so and nor is it the people who live in these countries fault . It’s the fault of the corrupt politicians who syphon of the aid straight to Switzerland or into crypto currencies and the fault of the lenders who hold no one responsible . The amount of aid that gets stolen or misappropriated is staggering . Trump’s stance on Pakistan is tough and with no let-up in the jihadi culture there who can blame him, why as a government would you step down hard on extremism if you knew you got billions to stop it. Looking at it simply No jihadi – no aid. It also serves his purpose as Pakistan is indebted to China for their part of the new Silk Road so a little rap on the knuckles of Xi and perhaps a little reminder that there are sanctions on North Korea and China should not be helping them get broken.

Trump has broken with the Left’s disastrous  policy of appeasement to rogue states that threaten the world and talked hard but restrained from taking the ultimate action. As I write this “ rocket man” is opening dialogue with South Korea and  he is no doubt mindful of the limits that he has . Trump is also playing hard ball in the Middle East and not kowtowing to the “help any Muslim state” policy that Obama had. He appears to happily help Pro Western countries such as Israel whilst cocking a snook at those that hate the West. It remains to be seen whether he can bring a semblance of peace to the Middle East but it certainly does appear that ISIS are now on the back foot .

Domestically he has reformed the taxation system and hopefully some of the Dollars that are coming home will help the economy grow more and in turn help his blue collar supporters. As I write this Trump has just cancelled his visit to the UK or the pretence of not wishing to open the new US embassy here. There is a lot of talk about this and whether it was a good deal or not and as usual the truth is a bit cloudy but one fact is certain Trump knows property. The story I like best is that the US wished to buy the land outright in 2009 but the Duke of Westminster refused to sanction such a deal till the US returned land that had confiscated during the American War of Independence. The land comprised most of New York and Maine! Whatever the truth, I believe it was Bush not Obama who did the deal , the lease was sold at the bottom of the market and the new embassy was commissioned in the wastelands of Battersea. Now I like Battersea but it is not the location for an embassy. And to be honest who can blame him for not coming ? Mayor Khan has consistently criticised him (and turned much of London into a shithole) as has the Labour party who called for mass protests and really does he need the hassle?*

I started this column talking about Micky Dolenz. Micky Dolenz went on to become a star in the hit TV series “The Monkees” about a pop group for whom he was the drummer. After an interesting year in charge where there has been a US foreign policy as well as incredible economic strides at home will Donald Trump continue as successfully and end up becoming as popular and as fondly remembered as Dolenz? Trump is pretty consistently under attack with daily murmurs of impeachment and the Russian scandal seems reluctant to go away but if he can avoid this scandal , is it conceivable that Gerard Kushner will be the fall guy, and the economy continues to grow we could well see a second term and history treating as kindly as it treats Reagan ( and Johnson? ). Whether he is a great drummer is another story.

Richard Matthews, who began his career in 1973, is a former trader-broker in the London money, futures and foreign exchange markets. Twitter @dickiematthews5

This column is the opinion of the author and does not necessarily reflect the opinion of LiveSquawk.

*As a Londoner I am embarrassed that our greatest ally and friend  have been made so unwelcome. Regardless of your politically dislike of Trump he is the leader of the free world and even if you dislike him you should respect the office.

The Choo Choo from China is disturbing for the citizens of Chattanooga.

 

Whether it was my longing to travel or the sight and sounds’ of trains but I have always been enamoured by the romance of continental rail travel. Out of all the great London Train stations I used to love Victoria above all others. Not for any other reason than the fact that the boat train left there and on the giant display the magical word Paris appeared . Not Leeds, Newcastle, Watford or Birmingham but Paris. I loved it fifty years ago and I still get a childish excitement at St Pancras when I see the destinations for Eurostar and well , if I am in a station in mainland Europe that’s a whole new level of excitement. My wife will endorse this because as recently as three years ago I persuaded her to take the night train from Paris to Florence which was in all honesty not quite as romantic as I had sold it, never mind the sights and tastes of Florence made up for it.

Last January 18th a train arrived at Barking from far afield, not loaded with Elephants , Giraffes or Clowns (well if it did no one has mentioned it )as in last week’s column but with general household commodities. The train had left Yiwu in Eastern China and travelled across Kazakhstan, Russia, Poland , Germany, Belgium and France before arriving at its glamourous destination, Barking. In reality whether it was Barking, Stratford or Millwall doesn’t matter as it had traversed 7,500 miles and arrived in London. This journey was the first illustration of the success of the one Trillion Dollar new Silk Road initiative that President Xi Jinping is presiding over and since then trains have taken, what a surprise, Whiskey in the opposite direction. The great advantage is time as it takes 18days by train as opposed to about 30 by the more traditional sea routes.

As I wrote last year this initiative has ramifications far and wide and it continues to be financed through London, to the annoyance of other centres. The project is forecast to affect nearly 60% of the world’s population with one area losing out . The good old USA. The USA by nature of its location cannot directly benefit from this project and indeed with the rumours surrounding the Chinese restricting purchases of US Treasuries in the last week the impact may be greater. Indeed President Xi has stated that lending some of their trade surplus to build infrastructure across Africa, Asia and Europe that benefits so many, not least the Chinese, is a better way to recycle their massive surplus.

The influence of this project on commodity prices should be positive as the will be used in not only building the infrastructure but also be sucked into China to feed its massive industries. The ramifications of its financing and the effect of opening up trading in the RMB which will unsurprisingly be located in London will create wealth and ensure that London remains the preeminent European Financial centre. Boo sucks to those that wish to see London fail. As the influence of the project grows so will the importance of RMB which at the moment lags behind USD, JPY, EUR and GBP in terms of trading turnover which is surprising for the Worlds second, some would argue that they are first , largest economy .

A fantastic project for those that sit on the continents that will benefit and an irritant to those that don’t with the biggest loser appearing to be the US and we are now starting to see the reaction and the ramifications. President Trump is occasionally presented by the press as the world’s most powerful toddler who is prone to throw his toys from his pram. This to my way of thinking is harsh but there can be no disguising his annoyance with Xi , a man who he thought he could business with. It is a clash of visions and both leaders think their place in history is to restore their countries to their former glories be it in a militarily or industrially and as such we have the problem of the world’s  two most powerful men competing head on.

China for all its great strides is one hell of a partner to do business with. One simple fact shows this above all others . If you partner with a Chinese firm there is a requirement to reciprocate IP and yet one suspects that this is always one way traffic into China. From Trump’s point of view they partner with US companies, steal the IP, manufacture cheaper and dump the product back onto the American market. Then use the profit to expand their sphere of influence. As Trump came to the end of his first rocky year and passed the Tax reform bills there seems to be a swagger in his step and the refusal to approve the purchase of MoneyGram by Ant Financial (which is controlled by Jack Ma of Alibaba fame) may well prove to be the first of many mergers and takeovers that the US blocks as a 21st Century trade war breaks out.

I wrote earlier about President Trump’s decision to block aid to Pakistan and how this although appearing harsh at first can be likened to cutting off the supply of drugs to a junkie- the junkie will eventually clean themselves of the addiction. In the same way it is hoped that Pakistan will clean itself of the radical element in its military and government . Enough reason to restrict aid but if you do a little digging this action also hurts China who had lent Pakistan upwards of $56bln  to develop Silk Road infrastructure . Pakistan’s debt and interest payments to China have started and without US aid Pakistan will struggle. The Chinese must have thought it a wonderful game to recycle its trade balance in the form of loans to Pakistan and then get the US to pay the interest on them whilst at the same time aiding North Korea break trade embargoes. Will President Xi take stock and stop helping North Korea import oil? We will see.

In the background to the great adventure of the new Silk Road there is going to be increasing tension between China and the US and for Trump to stay close with Russia may make sense from a Geo Political stance if for no other reason than balance. As this game plays out there will be plenty of trading opportunities be it commodities, Bonds or RMB and let us just hope that Trump and XI just circle each other like two sumo wrestlers and resist the temptation to see who has the biggest button.

All things being equal can we have fewere experst and more expertise in 2018?

 

It’s the time of the year, or to be truly accurate shortly after, that we shine the crystal ball, shake the tea leaves and make predictions for the coming year. Instead of sticking my neck out some more I am going to have a glance over my shoulder and look back. I am going to start by going right back to the days when I was a floor broker on Liffe. I remember a client coming on and asking me what the price of the  Sterling Red June/ Red September spread ( A QUADRATIC EQUATION) was and I started answering by saying “ I think it is…” only to be stopped in my tracks by the retort “ Listen dog’s breath I don’t pay you to think, what’s the fucking market?”. A fair point, somewhat harshly made, but a fair point. A broker survives on his knowledge not his guesswork. Those words and more importantly that sentiment have echoed in my brain quite a lot recently especially now the 2018 predictions for the markets have been published.

Look back a little over the last couple of years and see what the pundits were predicting. Let us start with Brexit. Well what can we say about the forecasts on that? Christine Lagarde, Managing Director of The International Monetary Fund warned of market turmoil, plunging house prices and streets full of giant Lizards. She actually stopped short of the Lizards, but only just. Ahead of the poll, Ms Lagarde said the outcome of a decision to leave the EU ranged from “pretty bad to very, very bad”. I suppose the clue to her negativity is in her surname. Meanwhile the leavers promised pretty much everything with the infamous red coach emblazoned with a weekly £350m into the NHS being the most outrageous claim. The leavers defend their claim by saying that this sum “could” go into the NHS. Ah yes, another favourite, the conditional tense. Allow me to rant a little. In Latin based languages the conditional tense takes a subjunctive and whilst not being either equipped or pedantic enough to explain the vagaries of language I will just say that the subjunctive draws attention to the weakness of the tense. If I had only one wish for this year it would be for editors to cut any headline containing “could”.

 

 

HOW WRONG CAN YOU BE AND KEEP YOUR JOB?

Last year we were presented with doom and gloom from the get go. At the very least Donald Trump and Brexit would be a disaster for the world and French elections would endorse the right wing Marine LePen. For an accurate example look at the redoubtable Goldman Sachs for some market predictions. Goldman’s predicted that Sterling would fall from $1.25 to $1.14 err it’s trading more like $1.35.They also saw 10 year Gilt yields rising from 1.28% to 1.65% when in fact they fell to 1.19%. HSBC were not much better forecasting that the pound would hit parity with the Euro whilst Morgan Stanley were a bit more optimistic  when they called the Pound at €1.02 at least pro Brexit Roger Bootle called it better when he predicted €1.12 ( current market €1.13). Interesting though that Goldman’s predictions reflect the political views of their CEO, Lloyd Blankfein. Or are they just genuinely poor at calling the market and as such be ignored?

In the last year that markets have been driven by politics as much as anything else but who, a year ago, saw Macron winning? Did one pundit see May calling a disastrous election or Merkel not being able to form a government? I think not. Trump was and still is seen as a disaster for the US, by the media, and the record breaking run in the US stock markets was not even dreamt of. Crypto currencies? A fad that no one will take seriously Bitcoin was trading under $1000 on 1st January 2017 and we all know what happened there. Britain would collapse and its economy would implode. Hmm well I guess it is easier looking back than forward.

But look forward we must into 2018 when we will see Jay Powell taking Janet Yellen’s place, a banker replacing an economist, as chairman of the Fed. The challenge that many are seeing is the money from the Trump Tax cuts and what impact this will have. Naturally not the benefits but the negatives. The estimates of the overseas wealth being repatriated vary but a figure of around two trillion Dollars seems to be the ball park figure. Is this money already in Dollars or sitting in local currency? Is it in Bonds and do those need to be sold in Europe and US ones bought? Will the sudden impact of the money hitting the economy be inflationary and if so will short term rates rise whilst long term rates drop and we see the yield curve go negative? Just some of the challenges we can foresee facing Jay Powell no doubt there will be more and hopefully his years at Goldman’s will help him be pragmatic. In Europe we will see other challenges on the political front from Merkel to May and from Calais to Catalonia and in the markets what impact will the ECB’s slowing of asset purchases have?

I am not going to make any more predictions for the year; instead I am going to make a wish. I mentioned earlier the use of the conditional tense and how I hoped that the word “could” normally followed by utter nonsense was seen less in headlines. I am going to expand that wish a little bit to include that we stop having to digest what “an expert”  says and concentrate more on expertise. Remember the markets, an expert will tell you what the price could be but someone with expertise will tell you what it actually is so please editors remember this when publishing and traders just look at the numbers , they never lie.

This column is dedicated to Gary Bone who gave up his trading rights over the Christmas period. Gary and I were like brothers for quite a number of years. We worked hard, played hard and drank hard together in the late 1970s and early 1980s at R.P. Martin. He was without doubt one of the greatest brokers I ever worked with and he has died much too young. I thought of Gary whilst I wrote this column and his great escape phrase that he used when asked a price that he couldn’t quote. He would stall and buy time by saying “I will just pop into the orchard and pick a price for you“ leaving the dealer, who had asked the price, stuttering.

His other phrase that he would utter as we staggered drunk to bed in the early hours before work was “ See you on the beach , pet “. Well Gary, get a cold one in for me and I will see you there one day. God Bless you, old mate