Seriously, what’s going on?

Traders starting to believe all they hear!

It started with Sterling, moved on to the dollar and Euro and has now infected the Cryptocurrency market. Travelling within the safety of the herd, not thinking outside the box and becoming reactive. Funnily enough, I blame Reuters. When I was a trader, Reuters was the prime source of impartial balanced news. Now, they rely on sound bites from certain sources that are designed to get people to trade rather than give an impartial opinion.

If that is the reason you got into trading, then you may as well put your funds into a managed account and allow a professional to make the decisions for you. That is no bad thing, in fact it's a very good thing in certain circumstances but it is a decision that involves moving from becoming a trader to becoming an investor.

Taking Sterling as the prime example, traders have started to believe that simply because there is no news about Brexit, each side in the talks have been infected with a case of “bonhomie” and all will be well. Consequently, Sterling has risen but, if you notice that always happens during periods of “radio silence”. Sterling rallies when nothing is happening with Brexit, then reality kicks in and the two sides have their say and Sterling falls on the sure knowledge that being outside the single market cannot be good for the UK economy short term.

And, as for Bitcoin.

Being a “crypto novice”, I “get away” with considering Bitcoin as the “Kleenex” of the entire cryptocurrency market. What has happened this week to Bitcoin? This entire “wild west” movie is entirely typical, if that can even be contemplated, of a market that has no fundamentals and no trading base for those of a technical persuasion to “hang their hats” upon.

Having said that this week has, naturally, given license to the naysayers to say I told you so, but all it does in my opinion is provide much needed publicity to the whole cryptocurrency revolution.

Why do we only see the value of Bitcoin as being the number of dollars, pounds or euros it can buy? The whole “bubble” argument is invalid in my mind. Long term, if the value of Bitcoin or its ultimate replacement in the public consciousness were to be fixed at, say, one dollar but supply could continue to be controlled in some way (clearly, I have no idea of the intricacies of mining coins) through blockchain (see, now I am learning!), then its value could be truly measured and do away with the frenzy that sees it get close to $20k then back in $10k in the blink of an eye.

Meanwhile back on Earth.

Inflation! It’s all about inflation.

When extraordinary measures were taken to add liquidity to the markets which threatened to implode following the financial crisis, the conventional wisdom was that,as the global economy started to recover and grow at close to trend, inflation would spiral out of control, monetary policy would prove inadequate, and interest rates would rise more quickly than they fell to quell out of control price increases.

Well that was nonsense. Inflation has been benign everywhere except in the UK. It is easy to say that Britain has faced an extraordinary set of circumstances following the collapse of sterling by more than 20% following the Brexit referendum, but the truth is that extraordinary circumstances have been seen everywhere.

In the Eurozone, economists and analysts tend to forget that the currency itself has only existed for less than twenty years and there is no “hard and fast monetary policy guideline to cope with nineteen economies each recovering at a different rate. It is incredible that Greece, for example, is recovering as it has having had to deal with a currency that has appreciated at close to 20% in the past year. Germany is revealing its “Federalist credentials” virtually demanding an interest rate rise since the Bundesbank’s models are predicting a rise in interest rates. I never realized that Heidi Klum or Claudia Schiffer were that well informed!