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

Reasons to be cheerful, one, two, three,Yes, yes, dear, dear ,Perhaps next year – Ian Dury

 

A year ago the world waited nervously for the inauguration of Donald Trump to see what sort of presidency he would bring and as I wrote at the time his unpredictability may well prove to be his greatest asset. It’s interesting to see that indeed this trait, especially on Twitter, has infuriated the mainstream press and indeed the political establishment. Whether it’s tough talking to the fat kid in North Korea or criticism of the UK it is very hard to read his motives. Or is it? What you see on the label is what you get in the jar and it’s the contents which are so often unpalatable to the career politicians and journalists.

What is beyond doubt is that Wall Street, or more accurately the stock markets, have loved him. Many a time this year I have said “this is the top” of the market, thankfully normally privately, and yet the market has ignored all sages and carried on up regardless. In fact it has not only consistently made new highs it has cracked its own records of records. As I write this the Dow has broken new 1000 point milestone highs four times this year and if it finishes the year at 25,000 plus that would be five, yes five, thousand point gains in a year. As of today it has had 67 new highs in the year and finished ahead eight months in a row, the first time since 1995 that it has managed to do this. The Dow closed on 3rd January 2017 at 19,881.76 and despite the fact that it’s been driven by relatively few stocks it’s an awesome move. I wonder though if Trump’s tax changes will be the final piece of good news, just remember buy the rumour sell the fact. I wrote a year ago” buckle up for a bumpy ride” and if I was you I wouldn’t reach for the buckle just yet as I feel that the flattening of the 10yr -2yr yield curve is telling us something unpleasant.

Looking back over the year I also alluded to the rise of populism. At the time I thought that there was a real chance of some political upsets in Europe most likely in France and Italy. In France the outsider Macron was elected easily beating my tip Le Pen on many a promise of reform but already he seems to be struggling with this as well as with his own party where 100 party ,members are threatening to resign. I didn’t see though that Merkel would be unable to form a government or just how badly Theresa May could run an election campaign. Italy, of course, is Italy and whether its Beppe Grillo or Silvio Berlusconi it appears that their politics will continue to entertain. Populism is often used as a label by the “elite” to sneer at popular opinion as it turns against their arrogance. Sadly the feelings of frustration are being expressed in the rise of extreme politics, and politicians, and sadly the reality is now that Austria has a powerful far right element in its government. The powers that be in Europe continue on their course of federalism and ignore the voice of the people, whether they be in the U.K., Catalonia or Poland. Dangerous times indeed and increasingly it feels like the lights are starting to dim in Europe and the lessons of the thirties are being ignored.

Looking forward I have been trying to get an old Ian Dury song “ Reasons to Cheerful , Number Three” out of my head. It’s really an early rap song, not typical of Ian Dury at all, and consists of a list of his favourite things in life from Jon Coltrane’s soprano to British Motorcycles. An eclectic amusing song that has had me trying to think of reasons to be cheerful, sadly what I keep going back to are reasons to be fearful. So in keeping, vaguely with the song, here are firstly my Reasons to be Fearful , one , two , three.

Reason one to be fearful is the bursting of assets bubbles. With every day that the price of Bitcoin gyrates upwards we come closer to a major pullback. This is a fact, end of story. Nothing has such a steep rise, as Bitcoin has had, without a setback. If you look across assets everything from Fine Art, Equities to Bonds look overinflated. I am too long in the tooth , those that are left anyway, to want to predict when this will happen but happen it will and just hope that one pop doesn’t lead to the next pop because if it does we will see the opposite of good money chasing bad and the mother of all recessions. Is this what the US yield curve is telling us? Be afraid, very afraid if it inverts as we all know that the last seven times it has done this a deep recession has followed,

Reason two is the developing situation, which I wrote about recently, in Poland and other parts Eastern Europe. How much of the rise of the right in Poland and the political problems in The Ukraine are inspired by Putin is impossible to know but in my humble opinion it is much more likely than Russia interfering in the US or UK elections or indeed cutting underwater communication cables. Not only more likely but much easier. Europe moves inexorably towards the creation of a federalist state with aspirations towards a European Army whilst Eastern European countries move increasingly out of line with Western European policies. That sounds a bit familiar; I mean what could possibly go wrong?

Reason three is one name. Corbyn. I am going to assume that the majority of my readers understand the real threat that Corbyn, or more accurately his puppeteers represent to not only to the economy of the UK but also to its democracy. I for one, feel very uncomfortable when my grandchildren tell me what a lovely man he is and that their teachers all love him. Be under no illusion there is a sinister undertone to far left and there is a very real danger he could get into power.

So three reasons to be fearful but as New Year approaches but I can’t possibly end on such a down note! I have scratched my head to find some cheer and in doing so I have returned to Ian Dury’s song. In it there are many, many reasons given to be cheerful some very personal and some too rude to transcribe but my favourites and I am sure no one will disagree with these three are Harpo, Groucho and Chico. That’s three reasons to smile. The strongest reason for optimism , though, is that all though I’ve been close on my predictions in the last year I have very rarely spot on and I hope my pessimism in this column is misplaced and my reasons to be fearful are overdone.

I can now hear the closing bell for the year so firstly thanks for reading, I hope I have amused you and made you think on occasions. More importantly I wish you all a happy, prosperous and safe New Year.

Reflections on Christmas Past

 

By Richard Matthews 22nd December

The year-end approaches and I feel it’s only right to borrow a couple of traditions from Europe as they have given me so much to write about this year. In the Spanish world Christmas is celebrated by Noche Buena  and New Year’s eve is called Noche Vieja. In honour of this and my European friends, my final two columns of the year will reflect these two nights. Noche Buena, or Christmas eve, celebrates the good that is about to come to this earth and is traditionally a night for stories so I am going to dip back into my memory and remember what Christmas was like in the City in days gone by .

My first Christmas at work came in 1973 and I was a fresh faced innocent, yes I was, young broker at Phillips and Drew. P and D as it was known by all and sundry was a blue blooded stockbroker and one of the top names in the City. It was a very traditional broker and we wore starched collars, short hair and polished shoes. Anyone that strayed from this path didn’t last long. My first Christmas I had only been at the company for three months and was earning the grand sum of £1250 per annum – that’s inflation for you! I didn’t dream about a bonus, those came years later, all I remember was being petrified off getting too drunk at the Christmas party and making a fool of myself. I can’t remember the Christmas party, I kept my job so I can’t have been that drunk but I do remember staggering home with a Turkey. Now I didn’t find the Turkey on the tube it was the Christmas gift, a Turkey or a bottle of Port, from the partners. Very generous I hear but I do remember being told, after sharing a lift with the senior partner, that he had just earnt £5 in the minute that the lift had taken to go down the six floors. Do the math.

Flash forward 20 years, well if Charles Dickens can I can, and I remember the heady days of the floor and the excess that came with the success. The barmy parties that we held when we hired out The Grand in Brighton or the Belfry in Birmingham. I will not go into the detail of beds flying from windows, doors being taken off hinges  or cars being carried into lobbies because despite them all being true it’s not fair to name names – is it Wilko? Oops- hey ho, he won’t mind. Funnily enough the story and image that sticks in my mind is Harry The Horse dressing up as Santa Claus and taking a collection bucket around the floor where we had to empty our pockets to fill it. Ouch, but it was all in a good cause and hats off to the great Steve Harrigan for doing this.

The stories of these parties are legion and I am sure all of us can tell some but the funniest story that I can remember occurred in the run up to one of the Christmas dinners. Certainly some of my readers will remember this, possibly even the editor, but to protect the innocent I’m going to change names slightly. As always when organising these dinners a runner would be assigned with the job of ringing around a few restaurants and getting availability and menu prices. The runner I am thinking of had the nickname of Deutsche Mark and lovely man that he is he could never be accused of concentrating too hard. On this particular occasion he had found a restaurant and was going through the menu when he got onto the subject of the main course. The restaurateur said something along the lines of “ We have Salmon , Turkey or Venison “ to which Deutsche Mark asked “ What’s Venison “ the restaurateur answered  “It’s Deer “ to which the reply came “ Don’t worry about the cost as Steve, the boss,  is paying “. True.

I am going to close with a little plea, I am not dressing up as Harry The Horse did all those years ago but I am going to ask you to think of those less fortunate than ourselves. However good or bad your year has been there are those who are worse off. Please think for a minute of the homeless that live on the streets that have next to nothing to give them comfort . When you see these people don’t just give them money please ask them what they need. I support one organisation that helps, it’s called  Dogs on The Street. Just pause and think who looks after the dogs that the homeless have with them? These dogs are often their last friend and only source of companionship and warmth. Dogs on the Street is a not for profit organisation that supply food, clothes and Vet care to these dogs. Now if my story about Deutsche Mark and Venison has made you smile please,please give a little help to DOTS (their details are at the bottom of this page) and by helping others you will really join in the spirit of Christmas.

Where ever you are, whatever your religion have a good Christmas!

From Hampstead Lane to Downing Street

 

When I was young anything at school that was unpleasant was sold to pupil and patent as character building. A different world from now, a world where the phrases “I don’t like or I can’t “didn’t exist. Don’t like the food? Tough; eat it or go hungry. Don’t like cold showers? Tough, stay muddy. What all this discipline did apart from prepare you for life did was teach you to find solutions. Solutions to problems. One of these problems was my vehement dislike of cross country running – I loved all other sport but for some reason running for running’s sake on a cold day held little appeal. To avoid this I used to sprint off at breakneck speed, get ahead of the pack and hide out in a friend’s house till I could see the bedraggled troop returning at which point would liberally smear myself with mud and nip out into the tail. True story, actually one of the readers of this column can verify as he was at school with me. True or false Richard? Richard was a great runner and layer became a compliance officer whilst I became a broker, I wonder if there is a link there?

I thought of this whilst I watched Theresa May’s trials and tribulations recently. She was so weakened, partly by her own party and partly by the meddling of Euro Politicians it looked like she could not recover. Yet recover she did. From such a weak position she garnered strength and put together what seems to be a clever deal with Europe. By agreeing to move on to stage two of the negotiations with a capped payment of about €50m she has suddenly got to hold a decent hand of cards.

The pro remain press may not agree but by agreeing the top of the price the UK is going to pay its very hard , if not impossible, for Europe to up this price and with the UK a net importer from the UK all of a sudden the negotiations look more balanced in the UK’s favour. The defeat of the government last week again heralded as a major setback by the reamainers is no such thing. What is not reported is that if the final deal goes to a vote and it’s rejected by Parliament the UK will walk away with no deal and no payment to Europe. Europe has already stated it won’t renegotiate so there we have it. Every reason for Europe to negotiate a good deal as they are desperate for the €50m cash, indeed some reports suggest that they will go bankrupt without the cash . Remember they can’t borrow.

Why this scenario is not reported by the mainstream press and media remains a puzzle but trust me her position is stronger than it has been for months, certainly since the election. The backstabbers in her party have had their day in the sun by defeating her in Parliament but will now back away as they fear an election , the Labour party changes its position on Europe every day and has no, let alone consistent, policy. When questioned a leading Labour spokesperson (I am being deliberately politically correct here) Angela Rayner said “more employment and economic growth “. As shadow education secretary you would think she would know the difference between an ambition and a policy.

Many a bad day will come again for Theresa May that’s for certain but her very weakness has been turned to strength. I wonder if she was made to go cross country running as a youngster and found a way round it and remembered this in the dark hours that she faced last week. If overcoming adversity is character building one thing for certain is that being Prime Minister’s character must be enormous.

We live in extraordinary times with strange days. Strange days indeed where weakness is strength. A parliament where Remainers strike a victory for a soft Brexit by revolting against their own party which in turns gives hard Brexiteers the opportunity to ensure a no deal exit…if they in turn vote against the government. Heroes to villains and back again. Pass the looking glass, Alice I think I need it.

Poland – the latest naughty Child

 

Anyone who regularly reads my columns knows I’m a great proponent of democracy, freedom of speech and the self-determination of people. I worry when a “ruling body” becomes overly oppressive and dictatorial, and I am worried now. I’m worried at the hard line stance Europe increasingly seems to be taking.

The problems in Catalonia rumble on whilst political prisoners are held in Madrid. With Article 155 invoked, the autocratic rule of Europe’s puppet Spanish Prime Minister Mariano Rajoy is being strengthened. Be under no illusions: he is a puppet – without the support of Europe Spain’s economy would collapse. So he dances to the tune that they play. The crisis in Spain is well off the front pages, somewhere between celebrity gossip and sport.

EUROPE’S REACTION TO POLAND’S TURN TO THE RIGHT

That’s where you might also find what is happening in Poland. Poland, that beacon of anti-communist hope where free elections 30 years ago preceded and emboldened the fight for the fall of the Berlin Wall. Poland has taken a fierce turn to the right, and along with Hungary, not scared of courting controversy.

Poland has become increasingly dictatorial since the election of the far-right government led by Prime Minister Beata Szydlo and President Duda. The government has been interfering in the judiciary, never a good sign, and is also fiercely anti-immigration. So how does the ruling body of Europe react? It starts the legal process of Article 7(1).

Article 7(1) is the legal structure to impose sanctions that in the first instance precludes a member from voting in the European Council, which decides the law. A sort of “you are a member but you can’t be involved in the law-making process if we disagree with your politics.” I have had to reread what I’ve written as it seems so unbelievable, but it’s true.

“When you have a centralising force such as Brussels, there will always be tension between independent nation states and integrationist bureaucrats,” said Andrew Rosindell, UK member of parliament (MP) to LiveSquawk News.

Still, Rosindell, a leading Brexit proponent, finds it “astonishing” that the EU reacts by saying Poland is undermining democracy.

“Brussels kept silent on the Catalonia issue, forced countries to vote again for the Lisbon Treaty, and bankrupted southern Europe with the Euro,” he said. “Clearly, the Eurocrats have been furious with the Polish government ever since it refused to take in refugees.”

Various Remainers were approached for their views for this column, but none were willing to be interviewed.

ARTICLE 50, ARTICLE 155 AND MAYBE AN ARTICLE 7

Margaritis Schinas, chief spokesman at the European Commission, told LiveSquawk Brussels was indeed unhappy with Poland’s current political stance.

“The commission is ready to use all tools at its disposal, including Article 7(1) if and when it decides that there is a clear risk of a serious breach of the Rule of Law,” he wrote in a detailed email response to my questions. “The Rule of Law is not optional,” he wrote.

Translated to, I suspect, the Rule of OUR Law is not optional.

While I am in no way condoning the behaviour of Poland or indeed the Catalans, I feel strongly that freedom of speech is a fundamental right and by their actions Europe is suppressing these freedoms.

Apart from my own political feelings why do I feel this is so important? Because I remain more convinced than ever that beneath the smarmy exterior of EC apparatchiks, there are problems as big, if not bigger, than Brexit for them to worry about. Apart from Poland there are the domestic political problems of Germany’s lame-duck Chancellor Angela Merkel, France Emmanuel Macron’s internal problems, and for Spain, not only Catalonia but its simmering pension crises. Europe looks like a big bowl of Matzah ball soup to me.

With Theresa May exploiting her position of weakness, a position where no Tory MP can truly attack as they fear an election, to pull a deal from the fire with Europe the UK is now in the driving seat – a fact you won’t see reported in the Press. I, for one, doff my cap. The UK has capped the payment due at a figure of circa£35bln whilst it negotiates a trade deal. Nota Bene- Europe sells at least £80bln more goods to the UK than we do to them. Do they want to lose this? I’m not suggesting that we want to be as crude as “Do you still want to sell us your BMWs because if so we want the £35bln dropped down a bit” but I am now turning increasingly bullish of Sterling and I would tickle at few longs on board the one thing that I am sure of is to steer well clear of the Bitcoin casino!

Andrew Rosinedell has been The Conservative M.P. for Romford since 2001 as its Member of Parliament.

 

k.

 

 

Bitcoin – a bridge too far?

Bitcoin – a bridge too far?

By Richard Matthews , December 8th 2017

Last night I watched a fascinating programme about one of my great heroes, Isambard Kingdom Brunel, a man who through his mastery of maths and extraordinary imagination revolutionised Great Britain at a time of innovation the like of which we had never seen before, The Industrial Revolution. At present we are in a similar era and since the invention and subsequent widespread adoption of the internet everything in our daily lives has changed from the way we shop, listen to music or bank and trade. Not everything Brunel tried succeeded but he left a legacy including the first tunnel under the Thames built the longest tunnel and widest suspension bridges (all still in use) the biggest steam ship for his time and a bridge that still stands in Maidenhead with the widest arches. All these changes were driven by the invention of steam power and the drive of the railways,

Similar to the widespread acceptance of steam power which changed industry between 1760 and 1840 the internet has changed how we do business indeed, I am now able to write this column surrounded by fields on a beautiful snowy morning in the country. Instead of drawing people into cities as the industrial revolution did the internet revolution has given people the option to work from where they wish to work from. Now I can sit and trade away at home and at least lose money in a comfortable environment and not even have to worry about my train fare home, and boy what a week for trading . Trading Bitcoin that is.

Last week we saw extraordinary changes in the price of Bitcoin as it surged from $11,000 to $16,000 and back down to $13,000. That’s in a week. I suspect that quite a few of my readers are ex LIFFE traders or indeed members of other exchanges workplace social groups. I mention this because there has been a stream of comment on Facebook and the rights and wrongs of Bitcoin for a few weeks now which has increased in tempo  as the price climbs. There are a lot of salient points made regarding Bitcoin but I thought the most telling comment was that “A taxi driver told me that he was borrowing to invest in Bitcoin”. Whether that story was an urban myth or not it reflected the worrying trend that the casino that is Bitcoin is sucking people in. People who are driven by the greed and fear of someone else making easy gains. Every single aspect of a bubble is there now and it doesn’t matter whether it goes to $ 30,000 no commodity, and it is a commodity, with such volatility can be traded and there will be a serious shake out. If you doubt this just look at Silver in the 1980s when Nelson Bunker Hunt tried to corner the market, the real question is what happens then.

 

I wrote in my last column about bitcoin in August 2017 a month when the price moved from roughly $2700 to $4700 which now seems a long time ago and a relatively small movement compared to a week like last week ( 2nd December to 9th December ) when the price moved from $11,000 to $17,000 and back to $15,000. Extraordinary and despite appearances I have never seen anything like it as not even  I am not old enough to remember Tulipmania. Lest anyone thing that Tulipmania and other bubbles were just for “ mug punters “ remember that Isaac Newton borrowed to invest in the South Sea Bubble and lost everything. Without a doubt a bubble and I am not going to be foolhardy to predict when it bursts.

What the bubble is doing though is drawing attention to these new” currencies” and educating us all on a new way of paying for goods and financing businesses as well as new forms of business . In August when I previously wrote about Bitcoin I was only just about aware what an I.C.O, (Initial coin offering) was and had never herd (I can’t resist a pun) of a server farm. Now they are increasingly talked off and the CBOE and CME are introducing/ has introduced  Bitcoin Futures – which should be an interesting market to watch especially to see how large the open interest grows to as remember there is a finite number of Bitcoins in existence – unlike any other commodity or currency. Foreign Exchange houses are increasingly being drawn into the market and Central Banks are rumoured to be considering issuing e-currencies with Sweden the leading contender to do so. The introduction of a Central Bank backed currency will be the coming of age for this new transactional payment method and will have as big an impact on the world has the internet has had on the High Street. A truly international currency fungible with an underlying FIAT will facilitate huge growth in World trade as transactional costs are dramatically lowered and exchange spreads all but disappear thanks to the blockchain. Transactions will be instantaneous at tiny spreads and all of a sudden Visa and Mastercard charges will disappear as their technology becomes redundant.

Isambard Kingdom Brunel had his failures as well as his successes such as when he tried to introduce atmospherically propelled trains – a great idea but unfortunately not scalable. Like Brunel not all innovations have succeeded in the Internet age from phone operating systems to the early days of streaming and it’s not always the strongest that survive. As I wrote in August it may or may not be Bitcoin that survives but other Cryptos will. As Brunel completed the Box Tunnel in 1841 and first saw light at the other end he must have worried whether it was really daylight or the mythical gorilla with a flashlight. Much the same is happening with Cryptos there is starting to be light with the increasingly widespread understanding of them and trading volumes but is the volatility telling us something we would rather not hear? Are people investing in Bitcoin as a safe haven where money can be secreted away from the authorities prying eyes and in some cases using it to bust sanctions? Its noticeable that Gold isn’t reacting to World events in the way that it has done in the past and Bitcoin investment may be the reason or equally it may be that punters taking a chance on its volatility because Central Banks through QE have destroyed yield and value and there again they may not. Similar to the yield curve movements in China and The U.S. the markets are telling us something and that something is be careful there is a shock coming and the bursting of the Bitcoin bubble will add to our woes.

Belt and braces will help hold London up in world Financial terms.

Looking back over my last few columns and reading the mainstream press one would be forgiven that the only story of any import is the standoff between Europe and the UK. It is not. Let us cast a glance over the top of Europe further East to China and learn how a country that views 2017 too soon to judge the effects of the French Revolution has embarked on a grand plan for their future the like of which is at least the equal of Marshall aid and in truth much greater.

The Chinese have embarked on building an infrastructure the like of which the world has never seen a new silk road. The original Silk route was the trading artery  upon which traders embarked on till the end of the 14thc which reached  ended in Andalucia where the Eastern world met with the moors that were ruling much of Spain. It is difficult to get hard and fast routes attached to the new “road” but it seems to reach across via Turkey through Northern Europe to Rotterdam from which it drives down to Venice where it meets the Maritime silk “belt. The belt connects Europe to The Arab World, then onto the African  and  back through India , Indonesia and the Malacca straits to Mainland China. Despite large investments having been made in Spain, around Valencia, it seems destined to have that area only as a secondary ports. Another great investment by Europe.

The vision and ambition is breath taking and the benefits, at last initially, are clear to see from both sides. China can suck in all the raw materials it needs to support its extraordinary growth whilst using the same route to export finished goods. Similar in many ways to Great Britain when we had an Empire. We imported the raw materials from the Empire to manufacture goods and then exported the finished goods. To digress slightly I have always thought a story about my father exemplified the way we thought …He imported Kangeroo skins from Australia and manufactured a Koala Bear soft toy from them and then exported the said toys back to Australia. Now that’s arbitrage .Sadly one only has to go the old docks around Canary wharf to get an idea of the breadth of our earlier ambition. Sadly because the wharves are mainly flats now. I suppose its sweet justice that Canary Wharf is one of the leading centres in the World for financial arbitrage.

The cost estimates on the building of rail tracks etcetera are not clear but what is clear is the reported $900bln set aside by the Chinese Development Bank to work on infrastructure projects. As yet I have heard no “if you don’t pay us billions you won’t have access to the Silk Road” so is it safe to presume that Europe is too busy looking at its own naval to have looked East and presumably the Chinese are too bright to be relying on Europe for its trade or forcing countries into trade agreements. The new routes for transport will help boost local economies and thus help China export and I suspect the RMB , London is the global centre for its trading, will become a more widely traded currency against all the countries the route touches and the route goes through countries that account for 29% of the World GDP ( Source HSBC). President XI has stated he was wishing for $2.5 trillion of trade along the road within a decade. But where does this leave London and the USA?

London has played a key role in the financing of these ambitious plans and will continue to do so whatever the outcome of Brexit. The UK has a long history of interaction with the Chinese (admittedly not always in a manner we should be proud of see Opium) and retains close ties especially through Hong Kong where we are seen to have behaved honourably by the Chinese. Our ambitions also explain the lengths that the present government has gone to in building relationships with China. We also maintain ties through such lauded names as HSBC (some forget that Hong Kong and Shanghai Banking Corporation is its full name ), Standard Chartered and Jardines. History may not be fashionable but is of great importance to China and should not be underestimated. When it comes to helping finance the infrastructure of this reported trillion Dollar project the fees generated by the undiminished prowess of London will provide a timely boost to our post Brexit finances.

Where does this leave America? It’s hard to see its role or place in this project. No doubt Goldman Sachs will dip its tentacles in but when you look through the banks and advisors that are being used, apart from The World Bank, I could not find an American name. Not only is America missing out on a slice of some gargantuan fees but by its very location it cannot be part of the adventure. As yet very little has been said on this but I wonder if there is some politicking going on with Donald Trump using North Korea as  leverage in some way ?

A new silk road and sea belt that benefits Europe and in particular the UK is fantastic news and a subject no doubt I will revert to again in months to come but is it all gladness and light? The Chinese are suffering a bout of indigestion with their internal markets and as the 10 year bond yield continues to flirt with 4% we may be seeing the start of a marked slowdown there. If you had invested $1000 in Chinese 10 year last year that investment would be worth approximately $650 now and that’s with very little currency movement and this move would make private investors nervous but I doubt it will slow down the likes of the EBRD and the Chinese Commercial banks investing. As the Chinese proverb says Bú pà lù cháng zhǐ pà zhì duǎn – which translates as Not fear a long road; fear aspiration to start or as we more prosaically say Rome wasn’t built in a day.

The Reds are back under the beds!

The Russians are coming, The Russians are coming!

By Richard Matthews November

October is historically seen as a month for stock market upheaval driven by institutional traders finally being back from their long summer breaks to face the slew of corporate earnings and markets that have been puffed up through light volume. Indeed yet another anniversary of the first great crash of modern times passed recently when the thirtieth year since the ’87 dump rolled by. A momentous day of which I have already written and a day which has kept us scribblers happy and in work as we are guaranteed an article about it on a fairly regular basis. If October is the month for market crashes what is it about November that makes fermenting revolutions finally boil over?

A year ago this week a revolution, or what felt like it at the time and on occasions since, took place in America with the election of Donald Trump. I am leaving the reflections on his first year in power toXXXXXX and instead take a look back a bit further in time. In the United Kingdom we celebrate November 5th every year with firework shows and bonfires, on top of which effigies are sat and burnt. When I was a kid we used to make these effigies by stuffing old clothes with straw and go round the streets with them crying “A Penny for The Guy”. The Guy in question was not just slang it was referring to Guy “Guido” Fawkes a Catholic plotter who attempted to blow up Parliament in 1605 as a protest against religious discrimination. There seems something prescient about the date and the problems that the UK Parliament is facing now but there are two more revolutions in November which I think are more noteworthy at present.

In November 1917 Lenin finally let loose the revolution that had been brewing since the Kronstadt sailors rebellions earlier in the year and the Bolsheviks grabbed power in what was to eventually  become a government of unrelenting bloodletting, cruelty and famine for the next seventy two years till another revolution set the oppressed peoples of Eastern Europe free. This revolution is symbolised by the fall of the Berlin wall on 9th November 1989. A remarkable series of calendar coincidences, as a market man I always like to try and create a picture from scraps of news and all I can really think of that drove these revolutions is that in November winter is coming and the fear of cold and hunger pushed people over the edge. But is there a connection between the two Russian revolutions and the election of Donald Trump? An easy narrative indeed is to blame media manipulation by the Russians for his election and this is being followed with vigour by Clinton’s acolytes but as yet little hard evidence has emerged.

We all need someone to blame

Growing up in the early 1960’s we were schooled to fear Russia and the threatened nuclear holocaust and films such as “The Russians are coming, The Russians are coming “played on our fears whilst poking fun at how they were being hyped up. Now again 50 years later it seems that the mainstream media is blaming events that they don’t agree with or can’t fathom on the Russians. Events from Brexit through to the hacking of corporate information are blamed on those pesky Russians using little or no evidence. The ongoing sex and sleaze revelations in the UK Parliament are apparently  inspired by the Russians not the endemic sexism in Parliament where it appears that behaviour more akin to a 1970’s sitcom has been the norm. If this is all a plot to unseat the present government and replace it with the loony left it presumes a level of sophistication that many would say is beyond the KGB.

When I used to miss a trade I would look around and find someone or something to blame for my own shortcomings and normally it would be the closest and easiest thing that got my ire. Often , and I’m sorry David Thomset and Jamie Lear but  it was the runners standing nearest to me that got the sharp edge of my tongue or on rare occasions a telephone thrown at them . I didn’t really look for the real problem (my own idiocy) and it feels like that is happening now enabling the real culprits and the real driving factors to hide. Coincidences and the stories we draw from them drive the markets as they do life and now one sees China with its silk belt of communication threatening to dominate Eurasia whilst America paints Russia and North Korea as the devil to deflect away from its loss of influence in Europe. Spain and Europe blame the Russians for the Catalan Crisis when they should really be looking at themselves. The UK media ignores that the Channel Island based owners of The Daily Telegraph have lost a £1.25bln court case to HMRC and  **is this libellous? looks East for someone to take the blame for the leaks and sleaze emanating from Westminster which could eventually cause the enfeebled Conservative government to fall.

Whether movies imitate life or the other way round I am never really sure but I am sure that although “The Russians are coming” is a slightly dated movie now it still has some great performances, good laughs and makes a relevant point. The plotline is about a Russian submarine running aground off the coast of New England and this mishap being exaggerated until a full scale invasion of America is feared. After all the laughs the point that stays is that rational thinking and actions demand hard evidence and this is true now, more so than ever, in a world and in markets where a rumour becomes fact as soon as it is on Twitter.

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

My head in my hands

The world is a dangerous place and its too dangerous  to trade

By Richard Matthews November

Sometimes, most often when I’m watching the News on TV, I sit with my head in my hands. Literally with my head in my hands, rocking back and forth muttering I can’t believe it. I’m know my father was the same , indeed I can remember when The Rolling Stones  first appeared how outraged he was by their music , dress and in particular their hair. I of course laughed at the fuddy-duddy attitude but now I find this laughter comes back to haunt me. The News is often old news to those of us lucky enough to work in the markets and in reality the truth is that if it’s on TV or in the papers the markets know already and it can be a good indicator to reverse a position but none the less it’s often a head rocker.

I started rocking gently this week as the situation in Catalonia unfolded. I wrote recently about the dangers that were present in the Spanish government’s head on collision course with the independence movement. Why didn’t the Spanish government offer a legitimate referendum to the Catalans at some point in the not too distant future and offer concessions on some of the tax issues and in doing so avoid confrontation? Where were the great European leaders trying to resolve the problem? Abrogating responsibility or complicit? Hard to know. And as the story continues to unfold and words such as rebellion are bandied about I feel more uncomfortable but having lived in Spain, a country I deeply loved, I am not totally surprised by the intransigence of the people. What does surprise is that no one has suggested the use of Bitcoin as an alternative currency to the Euro in Catalonia or am I not alone in this thought as Bitcoin hits new trading highs?

Surely Bitcoin is the perfect solution for a newly independent country? I accept the fact that it is somewhat volatile on the markets and that the spreads are wide but wouldn’t that be the same for any new currency? With the CME announcing “Bitcoin futures “ any newly independent country would have a reference point for its currency which is a lot more than many could have hoped for or indeed many countries have . With hundreds of millions of dollars going into ICO’s in exchange for “tokens” it is understandable that the CME sees a market but it does feel premature, however if  a newly independent country with good exchange flows adopted Bitcoin, or similar it could prove to be a very precipitous move .

Whether Bitcoin, Etherum , Ripple or some yet to be invented crypto-currency  is adopted by a country is looking into the future and of course it raises the spectre of how Central Banks would react to a currency they can’t tax . Central Banks were once revered as the fonts of all knowledge even after pushing much of the Western World into several deep recessions in the last century and there is a case to be argued that perhaps an economy without their interference would be better and that is what you would get from a crypto currency. When you look at some of the interest rate moves, through hindsight, the over reactions are almost laughable. It now beggars belief that we worshipped slavishly at the feet of Volcker  when he oversaw an economy, apparently interlinked with interest rates, that saw moves to 20% in 1980.In many ways it feels the reverse now where we have had the fool’s gold of QE and overly low interest rates imposed for almost a decade , creating zombie businesses and over inflating asset prices . Did nobody look at the dotcom bubble of 1997 to 2001?

 

 

Is the Sun setting so soon on President Macron?

Having recently been in the South of France where the asset inflation bubble has certainly affected restaurant and hotel prices, if nothing else, it was interesting to see how Macron, presented to the outside world as the saviour of France, was fairing. From the outside all is serene and as beautiful as ever but two little vignettes struck me. The first was on boarding the train at Cagnes-sur-Mer  that there were metal detectors being installed at the entrances to the platform which was somehow incongruous with the faded charm of the station but coupled with security guards on the platforms made for a slight unease. For those not familiar with Cagnes’  location it lies between Nice and Marseille so perhaps these precautions are reflective of the perceived threat of terror. It’s so sad. The fact though which struck home was that having waited an hour for a local bus service we finally gave up and took a taxi back to the hotel and when we asked if the Bus had perhaps been involved in a crash we were told, with a classic Gallic shrug, that this was France and there are always strikes. Perhaps all is not quite as well as we are led to believe.

Are these domestic problems, by which I mean mainland European problems, at last, having an effect on Europe’s negotiating position with the UK which at last seems to be softening? It does feel like a sea change is happening and whether this was caused in part by May’s conciliatory speech in Florence or by the recent European Council meeting is not clear but there does seem light at the end of the tunnel which hopefully is not the proverbial Guerrilla with the flashlight. Mrs Merkel certainly seemed to be courting Mrs May at last and being the adept pragmatic German that she is it may well be that the penny has at last dropped that she has a tough choice – deal fairly with Mrs May or she faces Boris Johnson and the real possibility of a no deal walk away scenario which possibly hurts the Germans more than anyone else in Europe and in particular the car unions that support her.

As I write this I hear the news in the background where Catalan leaders are arrested, British Parliament is in chaos over a sex scandal and Donald Trump is under attack over purported links to Russia. In the meantime I am told that I shouldn’t ask people where they come from and to be honest I’m afraid every time a girl pushes past my gargantuan stomach on the tube in case I’m accused of sexual harassment . When I move my hands from my face into a more moose like position I see The UK, Europe and The US all with rebellious subjects, Rocket man with his finger on the button whilst stock markets hit new highs and there is talk of 16 year olds getting the vote, bonkers in my opinion. This all makes calling the markets really difficult as they are now politicised and currencies and stock markets are over reacting as a factor of a thin market and in these times the wisest move I am making is when I move my hands from my face I place them firmly under my backside and leave trading to the fools.

Almost Right

Bank of England Policy c. 1982 and One-Eighth Rate Moves

 

The last time the Bank of England (BoE) raised interest rates was on 5th July 2007, less than three months before Northern Rock went under, when its Monetary Policy Committee (MPC) hiked by 25 basis points to 5.75pct .Hindsight is a wonderful thing but  looking back its quite shocking how the Bank raised rates whilst the interbank deposit markets were freezing up. Almost as if they wanted to put the final nail in the coffin of these Northern Upstarts.

 

Thereafter, the MPC steadily sliced rates to the current 0.25pct, a record low set post-Brexit on 4th August 2016. While I recently wrote about the 10-year anniversary of Northern Rock, the 10-year anniversary of the Bank’s last rate hike came and went. But let’s be clear: it’s now more than a decade without any rate hikes, which even to an old-hand like myself is an extremely long period, the consequence of which is that there is a whole generation of traders and brokers who have never lived through a UK tightening cycle. Also lost through the sands of time is the bank’s extraordinary policy between 1979 and 1982 that hold a few clues on what Carney & Co. may do next as they ponder an increase.

 

The early ‘80s were not just a world of flash cars, shoulder pads and big hair. It was a world where London was adapting to open-outcry trading, with our colourful trading jackets we proudly wore often banned from restaurants and bars. The City was not ready for the future. Back then, three old stockbrokers in a champagne Bar called The Greenhouse complained about my appearance only to be told by the legendary local Alan Dickinson: “We are the Fffing future”. As open outcry trading took off so did Inflation it had returned by the late ‘70s and with it the use of interest rates as a way to control it. Governments slavishly followed the monetarist Milton Friedman and the Fed funds rate touched 20pct (not a typo) whilst the Bank rate in the UK peaked at 17pct.

 

ONE-EIGHTH OF A PERCENT RATE MOVES

 

What happened? We tipped over into a deep recession – almost as deep as the one we have just experienced. Interest rates were initially slashed in 1pct and 2pct moves, and then increasingly slowly until the bank often moved in 0.125pct steps. Or one-eighth of a percent – read and digest. Rates eventually reached the low of the cycle on 2nd November 1982 at 9.1250%. (http://www.bankofengland.co.uk/boeapps/iadb/Repo.asp)

 

Carney and his cohorts face a different economy, world and set of traders when the MPC meets next Thursday 2nd November 2017, but there is a strong argument for caution from the doves on the committee who may suggest raising rates by 0.125pct versus the widely anticipated 0.25pct.

 

Some City analysts think this highly unlikely, like Adrian Schmidt, head of analysis at FX Economics.

 

“It would smack of indecision and half measures and lead to a weaker pound which the bank seems to want to avoid, though personally I think a weaker pound is probably needed,” he said.

 

“I don’t think any central bank would consider such a small move,” said Keith Grindlay, global macro strategist and author of advisory Macro Thoughts UK. “Though there were rumours when the ECB was cutting…and central banks are good at surprises.”

 

Carney himself dismissed such a scenario when LiveSquawk News asked him this very question at the bank’s last press conference.

 

However, Carney would be able to appease both doves and hawks with such a move. By nudging the base rate by a fairly nominal amount, remember 0.25pct doubles them, he can show that he is acting prudently in being gentle with the fresh shoots of growth whilst ushering out the era of ultra-low rates. That cycle is at an end and we are moving gently towards a norm of maybe 2.5pct. An eighth may also be a gentle introduction for those virgin up-cycle traders who, without doubt, will be wrong-footed whilst us old boys will do as always and ”buy the rumour and sell the fact”.

Too Risky For Me- A binary choice

A conversation I had last week set me thinking. A husky voice that I’ve been familiar with most of my life croaked away on the telephone ” I’ve been asked by a friend to tutor their son about trading, what do you think “. The owner of said voice had been involved in the markets as an equity and options salesman in the 90s for one of the great US trading houses Dean Witter Reynolds (now sadly defunct) and knows, as they say, his onions. His friend’s son had become interested as he had a seen a FX trading system showing monthly returns of 10% and was rightly suspicious and having grown up in the wholesale markets such returns are rightly treated with caution. Indeed, the maxim if it sounds too good to be true it probably is holds as good in financial markets as it does in most things in life. As the financial markets have been brought increasingly to private investors there appears to be increasing numbers of “scams” in the markets and the biggest at the moment seems to be “Binary Options”

 

For those not familiar with them a Binary option is a financial option in which the payoff is either some fixed monetary amount or nothing at all, unsurprisingly they are also known as all or nothing options. All binary options settle at either 100 or par and you either win 100 or lose everything. Although there is a theoretical underlying need for binary options in asset pricing it’s the closeness to gambling and the ease with which prices can be manipulated that are the attraction to fraudsters, many of whom are based in Cyprus and Israel. In plain English they are a gambling mechanism that can be easily altered to ensure the house wins. As the option outcome is a simple win or lose on whether a price will be above or below a set level at a set time the investor, in the loosest sense of the word, is just outright gambling. And as with all gambling not only is it addictive but the house also retains a healthy edge

 

Many of the fraudsters use either celebrity endorsement, without the celebrity’s permission, or use pressurised cold calling methods emanating from “boiler rooms” which lead sadly to dozens of stories like this which was recently published by CBCnews “A rural Manitoba couple who lost $180,000 to an online investment scam has little hope of ever seeing their money again. Now, the Manitoba Securities Commission is warning others in the hopes that no one else will fall for the scam. “The reporter continued tellingly “Professional-looking social media ads featuring the unauthorized likeness of a celebrity — were used to lure the couple into investing money in a binary options firm.

 

At long last the regulators and law enforcement authorities of some of the host countries are starting to look seriously at the problem. In the last week we have seen The Knesset passed a law banning Israel’s  “multi-billion Dollar” binary options scam however this law will still take three months to enact but after those intervening months anyone involved in the industry will be liable to imprisonment of up to two years. The FBI and The City of London police have been proactive in hunting down these fraudsters with the City Police conducting a day of action on 17th October which consisted of visiting some 20 offices in London involved in this scam. But why oh why has it taken so long to do this? Secondly how can we be sure that these fraudsters and their scam won’t reappear ? Somewhat similar to watching moles in a garden appear and disappear –whoever Moles are only a pest on your lawn and don’t threaten to take your savings.

.

Having spent too many years as a broker I was one of the first to become a qualified options trader and I will add quickly the only reason I became qualified was that the exchange needed to populate the pits. Those pits were filled with traders with superior mathematical skills and in many cases sideways intellect – that’s not intended as an insult but a compliment. These traders stood with their volatility sheets making prices and I was well aware that if I wasn’t concentrating they would take my trousers down, financially that is, and I wouldn’t even realise. One of the cleverest and sharpest of these guys was Hamish Raw trader, all round good guy and author of 5 books on options and Binary options gave me this advice when I asked for his views on Binary options “Get an account with an outfit that are regulated by a credible regulator”. Simple advice but literally invaluable. In my personal view that means a broker regulated in a serious trading environment.

 

Binary options are offered through many regulated companies and platforms and in essence it is not the instrument that’s the problem but some of the brokers and regulators in particular those in Israel and Cyprus. All trading involves elements of risk which is where that great buzz emanates from but please, please make sure that the house making the odds is reputable and as I told my old friend Michael if it sounds too good to be true it almost certainly will be.

 

Mifid

Mifid – the topic that is impossible to avoid.

By Richard Matthews October 15th.

With less than 90 days to go to the implementation of Mifid II in Europe it feels that at long last people are waking up to the fact that wide ranging changes throughout the financial markets are going to happen. No arguments no more delays, when the bell rings on the first trading day of 2018 we will all enter a brave new world of regulation. Everything from the way research is disseminated, prices are quoted and foreign exchange is reported will change. To old market hands the scope and range of the changes are quite awe inspiring and at times look as if they have been designed purely for the regulator to interfere and have oversight on parts of the market that they have never been able to influence before. That’s is certainly not saying that there are areas that previously they should have looked at in more depth, such as  the obscenity which is binary options that still trundles along seemingly unencumbered by any thought to the poor people that get conned.

On January 3rd 2018 the whole of the financial services business will enter a brave new world of increased regulation and oversight from our Lords and Masters – the regulator. Already delayed by a year this tome, running to 17,000 pages and 1.5m paragraphs , that is 17 times longer than the longest book I have ever read. Cervantes classic Don Quixote weighs in at just under 1000 pages and at one point was said to contain every word in the Spanish language. Enjoying challenges and being somewhat cocksure of myself I announced to my late mother that I was going to read it I Spanish. Mothers being Mothers she only bought a copy in Spanish and thus I was cornered. I had to read it and I did. I recommend the book to anyone who wants to understand the Spanish psyche, a good read and to strengthen their wrists. Boy it’s a heavy book in more senses than one. My mother sadly is no more but even her wicked sense of humour wouldn’t have included a challenge to read all of Mifid II. There are those amongst whose job is to get to the nuts and bolts of the regulatory changes and they have been excitedly pouring over the detail of it for some time .

When you put Mifid11 into a search engine over three million results are available to you, many of which are compliance related. Now I come from an era where there was a very light, indeed too light , touch on compliance and market abuses certainly occurred. But these abuses were mostly treated internally by the market participants and a compliance officer was more often than not called to advise on a trade that had taken place not, as now, an impending trade. Is it OK to do this trade is the thought uppermost in a brokers mind these days.To me the markets are now over regulated and are only getting worse.

Some regulation seems designed to hamper the markets and ironically harm the very people, the small investor, which it was intended to protect. Transparency has always existed in the wholesale markets and if a broker tried to hide a price he would surely be found out. On many occasions a broker will have a market (in no particular instrument) of, let us say, 92-96. You can quote 92-96 till the cows wander home and not trade. The broker who closes the price to 93-95, previously flirting only with a difference but now also with the regulator, will trade. He has taken a market risk through his skill and knowledge, tightened the market and hopefully facilitated a trade by doing so. Under Mifid he will have to be imaginative in how this is executed. Would dealing tops and bottoms really help the small investor? I don’t think so as the worsening in the price will always be passed down to them.

The treatment of forward foreign exchange commitments is another area of confusion. For years a forward FX transaction in the UK  has been routinely regarded as a transaction for commercial reasons, under Mifid 11 this is no longer the case as a definite reason and end date on the forward has to be known or the transaction is seen as an investment and  falls under the FCA regulation. By taking this stance a number of brokers who acted under e money and payment directive licences are being forced to upgrade their licences and will fall under the FCA. What does this change achieve? There was the odd bad apple using deliverable FX forwards for speculative reasons, God alone knows why, without “specialist advice and oversight” but they were routinely weeded out as the executing broker knew and understood the dangers.

A lot has also been written about the restrictions on stock market analysts who, with all due respect to them, are not the most exciting of beings. But they serve a purpose to the general public and their advice trickles down into people’s pension pots and everyday lives. With the new rules on research their activities will be curtailed and not only will individual investors be harmed but also the smaller companies that they used to cover will be cut out of research as brokers become more cost conscious  as they will be unable to charge for the research. When I ran out of good excuses to avoid writing this article I started to ask contemporaries in compliance for their views on Mifid. Contemporaries  in compliance is a phrase I thought I would never utter but I find increasingly that a fair few of my old broker and trader chums are involved in the dark arts of compliance and there lies the danger. Not the danger of poacher turned gamekeeper but the danger that now traders and brokers find it harder and harder to make a living due to often over zealous regulation and its cost. Cost, now there lies the issue. How much did the faceless Mandarins earn creating Mifid 11 and all the three letter acronyms associated with it? Please no more TLAs. How much is all this regulation costing to implement? Two questions that are nigh on impossible to answer. As the costs and implications of the implementation grow ever larger, and nearer, two things about Mifid are certain. Firstly the regulators are safely behind their desks and enjoying life thanks to our generosity. Secondly and more pertinently trading volumes will initially decrease and costs will increase, the profitability of the larger participants and the very people, Joe Public, that Mifid was designed to protect will suffer as a result . What a great idea Mifid was a new regime seemingly without any cost benefit analysis, you couldn’t make it up could you? They have though, haven’t they?

Richard Matthews, who began in 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.

Spring forward or Fall backwards as the clock ticks toward Mif

By Richard Matthews October 13th.

With less than 90 days to go to the implementation of Mifid II in Europe it feels that at long last people are waking up to the fact that wide ranging changes throughout the financial markets are going to happen. No arguments no more delays, when the bell rings on the first trading day of 2018 we will all enter a brave new world of regulation. Everything from the way research is disseminated, prices are quoted and foreign exchange is reported will change. To old market hands the scope and range of the changes are quite awe inspiring and at times look as if they have been designed purely for the regulator to interfere and have oversight on parts of the market that they have never been able to influence before. That’s is certainly not saying that there are areas that previously they should have looked at in more depth, such as  the obscenity which is binary options that still trundles along seemingly unencumbered by any thought to the poor people that get conned. However the crucial point to me is that we have new regime without having any cost benefit analysis taking place. Now that’s a great idea isn’t it?

I was going to write purely about markets and Mifid this week as I felt that I had discussed geopolitics enough in the last couple of weeks. But it is impossible to ignore the real world. A world in which the implications and worries of Mifid pale into insignificance. A world where in recent months the battles of conflicting nation and state have been at the forefront of many at first seemingly disconnected events. In Puerto Rico a devastating hurricane has ripped through this impoverished country and one wonders whether the reaction of America would have been different and quicker if Purto Rico had been a fully-fledged state. How many years will it take this beautiful country to recover and how will it do so without billions of aid from America. Puerto Rico was bankrupt before the hurricane and now its muni bonds are next to worthless. Sometimes though, when one is touched personally by a tragedy (my mother in law is Puerto Rican) you realise that market reactions are only blips on a screen and insignificant when compared to losing a home or having to drink rancid water. The implications of this hurricane season go much further than normal and will reverberate for months if not years to come and I will return to these in a later column.

The relationship between a Nation –State and its people lie towards the root of some of the issues in the rebuilding of Puerto Rico but are clearly more evident in Spain’s relationship with its constituent Nations. The Catalan question continues and Madrid’s answer has been to clearly threaten to suspend the autonomous status of Catalonia. Regardless of the legality of the referendum that the Catalan government organised, the subsequent treatment by Spain of the Catalans is reminiscent of the Fascist years of Franco and brings back uncomfortable memories for much of the population. The sight of Fascist salutes in the streets of Spain and the far right making gains in Holland, Germany , France and Austria is of deep concern and as Europeans we really need to look deeply into our souls. Sadly though the “leaders” of Europe stand by and allow Rajoy to behave in a dictatorial manner and no attempt to reign his government in is made which is pointer to their real feelings.

Do not think this is an oversight by Europe. The treatment of Great Britain and Catalonia, all though on the face of it very different is actually quite similar. Both are being treated as if they are recalcitrant children as the Teachers in Brussels issue dictums “You will follow the mantra of federalism or we will punish you”. Shouldn’t they really be looking at these issues and acknowledging that there is a deeply seated problem with the whole idea of a federalist Europe? Further afield Iraq looks set to rush Kurdish dreams whilst in Europe Poland continues its stance against ( can I say Isamification?) immigration . All the while the arrogant idiot leaders stand aghast in Brussels.

The demands of Europe for a settlement from the UK look increasingly controlling and arrogant and it seems to me that now the UK government, rather in the way the Catalans have done to Spain, are sucking Europe in. PM May, whatever you think of her, was very conciliatory in her recent “European” speech in Florence. Predictably the hand of friendship was rejected and it now feels as if she has created a scenario where the UK is being seen to be forced to walk away with no deal and I believe this is exactly what will happen. Divorce alimony to Europe? As a trader would say, and I wish the UK would echo “Yeah lovely mate , where’s the prenup ?”

May we live in interesting times is and overused cliché but with the geopolitical events and risks that we have seen develop over the summer coupled with interest rate rises and the impending, none too premature, ending of the crack cocaine of the markets QE we are in for an interesting Autumn and Winter which hopefully the implementation of Mifid won’t slow down too much. Oil, Gold, Commodities let alone indices and currencies have all been, and are still , affected by the events that I have mentioned but the real losers are the poor people and please lets pause and remember them .

What do Puerto Rico , Catalonia and Brexit have in common?

Spring forward or Fall backwards as the clock ticks toward Mifid

By Richard Matthews

With less than 90 days to go to the implementation of Mifid II in Europe it feels that at long last people are waking up to the fact that wide ranging changes throughout the financial markets are going to happen. No arguments no more delays, when the bell rings on the first trading day of 2018 we will all enter a brave new world of regulation. Everything from the way research is disseminated, prices are quoted and foreign exchange is reported will change. To old market hands the scope and range of the changes are quite awe inspiring and at times look as if they have been designed purely for the regulator to interfere and have oversight on parts of the market that they have never been able to influence before. That’s is certainly not saying that there are areas that previously they should have looked at in more depth, such as  the obscenity which is binary options that still trundles along seemingly unencumbered by any thought to the poor people that get conned. However the crucial point to me is that we have new regime without having any cost benefit analysis taking place. Now that’s a great idea isn’t it?

I was going to write purely about markets and Mifid this week as I felt that I had discussed geopolitics enough in the last couple of weeks. But it is impossible to ignore the real world. A world in which the implications and worries of Mifid pale into insignificance. A world where in recent months the battles of conflicting nation and state have been at the forefront of many at first seemingly disconnected events. In Puerto Rico a devastating hurricane has ripped through this impoverished country and one wonders whether the reaction of America would have been different and quicker if Purto Rico had been a fully-fledged state. How many years will it take this beautiful country to recover and how will it do so without billions of aid from America. Puerto Rico was bankrupt before the hurricane and now its muni bonds are next to worthless. Sometimes though, when one is touched personally by a tragedy (my mother in law is Puerto Rican) you realise that market reactions are only blips on a screen and insignificant when compared to losing a home or having to drink rancid water. The implications of this hurricane season go much further than normal and will reverberate for months if not years to come and I will return to these in a later column.

The relationship between a Nation –State and its people lie towards the root of some of the issues in the rebuilding of Puerto Rico but are clearly more evident in Spain’s relationship with its constituent Nations. The Catalan question continues and Madrid’s answer has been to clearly threaten to suspend the autonomous status of Catalonia. Regardless of the legality of the referendum that the Catalan government organised, the subsequent treatment by Spain of the Catalans is reminiscent of the Fascist years of Franco and brings back uncomfortable memories for much of the population. The sight of Fascist salutes in the streets of Spain and the far right making gains in Holland, Germany , France and Austria is of deep concern and as Europeans we really need to look deeply into our souls. Sadly though the “leaders” of Europe stand by and allow Rajoy to behave in a dictatorial manner and no attempt to reign his government in is made which is pointer to their real feelings.

Do not think this is an oversight by Europe. The treatment of Great Britain and Catalonia, all though on the face of it very different is actually quite similar. Both are being treated as if they are recalcitrant children as the Teachers in Brussels issue dictums “You will follow the mantra of federalism or we will punish you”. Shouldn’t they really be looking at these issues and acknowledging that there is a deeply seated problem with the whole idea of a federalist Europe? Further afield Iraq looks set to rush Kurdish dreams whilst in Europe Poland continues its stance against ( can I say Isamification?) immigration . All the while the arrogant idiot leaders stand aghast in Brussels.

The demands of Europe for a settlement from the UK look increasingly controlling and arrogant and it seems to me that now the UK government, rather in the way the Catalans have done to Spain, are sucking Europe in. PM May, whatever you think of her, was very conciliatory in her recent “European” speech in Florence. Predictably the hand of friendship was rejected and it now feels as if she has created a scenario where the UK is being seen to be forced to walk away with no deal and I believe this is exactly what will happen. Divorce alimony to Europe? As a trader would say, and I wish the UK would echo “Yeah lovely mate , where’s the prenup ?”

May we live in interesting times is and overused cliché but with the geopolitical events and risks that we have seen develop over the summer coupled with interest rate rises and the impending, none too premature, ending of the crack cocaine of the markets QE we are in for an interesting Autumn and Winter which hopefully the implementation of Mifid won’t slow down too much. Oil, Gold, Commodities let alone indices and currencies have all been, and are still , affected by the events that I have mentioned but the real losers are the poor people and please lets pause and remember them .

Richard Matthews, who began in 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.

Més que un Club

 

Barcelona Football club is one of sports great icons and its motto in Més que un Club – translates as  “more than a club”. Why do they make this statement? Because they see themselves as a National team representing the “oppressed” people of Catlunya. To explain this and help to understand the sentiment I am going to start  with a little gentle geography and a short history lesson which I hope will be better than the ones I used to sleep through whilst at school! When I went to live in Spain twenty years ago I had a preconceived idea of the country which was, I guess, pretty uniform. A country blessed with 360 days of sun, a large coastline and primarily agricultural economy, which I had ambitions of contributing to but there lies another story. All my assumptions were quite accurate but what I hadn’t appreciated was the history of the country and the divisions that it had help shape. Spain covers over Five hundred thousand square Kilometres and is split not only by two mountain ranges running across the country, hampering communications in the past, but also by language and overhanging resentments of a bitterly fought civil war.

I first visited Spain, or I should say tried to, in 1972 when the Guardia Civil took exception to my long hair and turned me back at the border, ironically in Catalunya. That’s hard to envisage now that Spain is a fully paid up member of the European experiment and has a seemingly liberal government. In 1972 Spain was still under the authoritarian rule of Francisco Franco, a fascist dictator, who had collaborated with Hitler to acheive power in Spain in particular utilising the Luftwaffe on occasions one such was to destroy Guernica which ironically inspired Picasso’s great masterpiece. Franco ruled till 1975 and Spain was still struggling with democracy as late as 1982 when there was an attempted military coup led by right wing elements in the Army. The political feelings still run deep and old animosities still hold. Spain is divided into seventeen autonomous regions and roughly these can be divided again into four blocks  Madrid where the power is centralised , The Pais Vasco (The Basque country, home of the violent separatists ETA) , Andalucía in the South, ruled by Moors till 1492* and Catalonia which is primarily the North Eastern corner. Andalucía and Madrileños have slightly different dialects whereas the Catalans and the Basques, in particular, have totally different languages. Basque for example seems to share more with Hungarian than Spanish and Catalan appears to be a mix of Spanish, French and Italian.

There have been calls for many years for a return to the independence that Catalonians enjoyed between 1700 and 1935. The region that was particularly bullied by Franco during the civil war years and subsequently starved in an era, known in Andalucia, as the years of grass as that is all they had to eat. During this era immigrants flocked from the country to find work in Barcelona not only swelling its population but also, as often is the case, reinforcing its sense of independence. In more recent times Barcelona has seen an influx of South American migrants who feel strongly about oppression, understandably as they have often fled from it. The callsfor independence were really nothing more than rumblings and often exploited by the region to coerce Madrid into unlocking the coffers for municipal grants. Indeed Barcelona is a wonderful vibrant City famed for not only its football team bur also its food. When compared to the violence that the Basque separatists have frequently unleashed, killing over 800 people over the years, the independence movement has been a peaceful organisation and often just an excuse for a fiesta. There has always been a feeling amongst Catalans that they send more to Madrid in taxes than they receive back in services, it is worth noting that 7.5million Catalans account for more than 20% of Spanish GDP, this disenchantment with central government was fed by the withdrawal of the preferential status of the Catalan language in 2010.

Calls for an independence referendum were bubbling along relatively quietly until the Spanish leadership intervened in a heavy handed manner to try and block the vote , which by the way , almost certainly would have been a no. By the intransigence of Mariano Rajoy’s administration and the heavy handed intervention of the Guardia Civil (the paramilitary arm of the Spanish police) they have achieved the opposite of what they wished for. The originators of the call were the tax paying middle classes but the wider public, who may have been apathetic, are now exercised and rightly wish to have the freedom to express their feelings. However amusing it may be to see Disney cruise liners being disguised to billet Guardia Civil make no mistake their presence has reignited memories of the cruelty and murders that the hated Guardia served out during the Franco years. As one Catalan, who didn’t want his name revealed, told me  “if we have to die at the hands of the Guardia Civil we are ready to do so to honour the blood of our dead relatives”.

It feels that whatever the central government does the vote will go ahead and it is a binding result with no minimum, so a low turnout by activists could mean that Catalonia will declare independence on 1st October. Rajoy has the nuclear option to simply declare that the vote and decision are illegal and overrule it. His problem lies in the fact that his government relies on the Ciudadanos Party to support it in parliament and, here lies the kicker, Ciudadanos was originally started in Catalonia as an opposition party to independence but they are Catalans and whether Rajoy’s weak government could survive such a heavy handed approach is doubtful.

Whilst Europe appears to be embarked on a voyage to greater and greater integration to form a super federalist state it is interesting that there are strong feelings not only amongst the Catalans but also the Poles and Hungarians for independence and indeed the United Kingdom is in danger of splintering mainly through divisions on how it faces Europe in the future. Whilst the Catalans haven’t expressed a clear view on their role in Europe if they become independent it feels like once again the independence of a nation is having one last kick at freedom from the yoke of centralised power. Will the unelected bureaucrats listen in Brussels to what the people are saying? I don’t think so. Whilst all this plays in the background and threats of further civil disobedience lurk in the background I would not rush to buy Spanish stocks, in particular companies based in Catalunya or any Spanish bonds and whilst the Euro seems to be the beneficiary of safe haven status at present (God alone knows why) I would keep an eye on developments, many not reported in the press, in Spain and the old communist countries such as Poland and Hungary. When Poland calls for war reparations of One Trillion from Germany surely there is surely something untoward stirring in the wood shed and action to protect oneself is the wise route.

The Baseball cap challenges the Bowler Hat

 

Arguably the song that launched Bob Dylan into the public consciousness was called “For the times they are a-changin” and the lyrics to it are as pertinent now as they were in 1964 when it was written. Whilst the social change that he was referring to is still under way the lyrics are just as relevant to the long overdue changes in banking which are being spearheaded by some of the Fintech companies that I referred to in my last column. Having spent a frustrating morning trying to contact an employee with a brain larger than an amoeba at Lloyds business banking last week my thoughts turned to the role and efficiencies of the challenger banks and the fact that the introduction of new methods of banking are being embraced and welcomed.

In 1964, (I will own up and admit to being 9 years of age in that year) I used to go to the bank on a Saturday morning with my late father. Every week we went to the same branch of Barclays Bank and each time we saw the same cashier, if I think really hard I will remember her name, who I can still picture. They were deferential to each other whilst he conducted his business and there was a kind of churchlike hush to the whole process. In fact oddly I can still remember the smell the branch. The point is that the system worked and there was respect between both parties. A banker was a respectable member of society on par with a Doctor, Accountant or Lawyer. Over the intervening years antipathy towards bankers has grown quickly and being a derivatives broker I saw first-hand that by the late 1980s many banks had simply become addicted to gambling. And as in any Casino the house wins but this time the house not only won but it destroyed not only their reserves but also their reputations. It seems unbelievable now but the banks didn’t know what they were gambling on or how much they were gambling. Ten years ago this month (this week past?) queues began forming around Northern Rock reminiscent of those that my mother had seen in 1929 in Seattle. The problem was not caused by derivatives with Northern Rock but none the less the overriding reason was the stupidity of not understanding the risks that they were running by borrowing short and lending long. An age old recipe for banking disaster.

Ten years after the crash the banks are more cautious than they were and have, of course, overshot in the other direction. Lloyds were forced into a disastrous merger with HBOS and whether this has caused the problems they have with customer service is open to debate but for sure they have problems just the same as all the major banks. The issues are twofold the respect for banking has gone and they are now no better thought of than a real estate agent (apologies to any of those reading) and certainly staffed and run by intellectually challenged individuals operating antiquated legacy systems . Why do I have to spend 30 minutes to speak to someone 300 miles away who doesn’t know me, doesn’t understand my business and doesn’t care? Why when the same person rings back to make some time wasting appointment to speak to me again to review my situation do I have to go through the same barmy identity questions that I had answered 15 minutes previously ? Do they think my mother’s maiden name has changed in that time? All I wanted was to find out how to reset the banking app on my new phone and not raise my blood pressure.

The feelings of disenchantment are widespread within the public and this has encouraged the phenomenon of challenger banks or in plain English new banking kids on the block. In the area where I have some experience , dare I say expertise , Foreign exchange the main banks have given up the pretence of offering anything like a sensible service to individuals or SMEs and by doing so have opened the door to companies such as FairFX , Transferwise and Revolut. It is open to question whether these companies and other payment solution providers are challenger banks per se but what can be said, with a degree of certainty, is that they have stripped out a lucrative niche for themselves from the moribund banking systems by being user friendly, quick, cheap and efficient. Four adjectives that you certainly wouldn’t attach to the mainstream banks.

Other challengers that are after the traditional banking business of deposits and general banking have entered the scene some with funky new ideas such as Metro Bank whilstothers such as Starling are internet based. The internet based “banks “ range from those that hold, or are in the process of obtaining ,full banking licences to those that are cannibalising the existing systems to provide a better service and are aimed at specific parts of society such as the lower paid. By the clever use of an electronic money licence, to create an e-wallet and buying a sort code from a clearing bank they can appear to be a bank – nothing illegal and the deposits are covered by the FCA insurance scheme. These so called bank in a box offerings probably don’t have the legs to last the course but certainly the likes of Metro Bank and some of the digital banks will survive and prosper as the big banks , like a big old steam driven ship are too slow to turn .

Over the next few years we will see which of these challengers will survive and whether they can prosper outside of the UK for as yet there seems to be few new banks emanating from the USA or Europe. Bob Dylan observed “The slow one now, Will later be fast… And the first one now, Will later be last” and when the new banks are looked at these words ring true .Not all will prosper and it is certainly hard to pick those that will. As the banking system creaks in Europe the concept of new banks can surely only be a short time away whilst in America it is possible that the cross state banking laws may have restricted the growth. Whilst London and its businesses, and my column is not immune to this criticism, are often accused of being “London centric“ the growth of new banks and methods of transactions will benefit all levels of society. From Liverpool Street to Leeds, Holborn to Hull the lowering of costs and raising of efficiency will benefit all society whether it’s the lower paid being able to open bank accounts to small businesses getting cost saving benefits and better service these challenger banks are universally a good thing. If the old high street banks don’t adapt they will wither, whether they are too late too remains to be seen but without doubt the times they are a-chngin in Lombard Street and thankfully one is now much more likely to see a baseball hat  than the traditional Bowler hat.

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.