Sometimes, you just have to go with it

Don’t catch a falling knife

An old boss of mine used to have a favourite expression, he used to label bottom or top pickers as trying to “catch a falling knife”. He was not a fan of averaging into a position. He didn’t see the point. His preferred method was to await the turn and if he lost a few pips confirming his view so be it. The effect was often the same, but he was more often right than those who had averaged in.

He had the advantage of being able to set a stop at below the point where selling (or buying) had ended while those averaging in just have to wait (and hope).

This week has been like that for the dollar. I am sure there were loads of traders out there desperate to buy dollars, but it just kept going. The move against Sterling, in particular, was insane and I read many column inches extolling the fact that the pound was rallying due to monetary policy considerations or inflation data all of which stretched the credibility of the Bank of England to the limit.

The dollar was falling, plain and simple, and it was “the economy stupid” (to quote a Clinton advisor form 1992). Fiscal receipts dropping due to the corporate tax cuts and infrastructure plans adding to Government debt spooked the market.

“Sentiment” is just lazy analysis.

When I write articles, blogs and comments about the market I am usually able to fish just below the surface and come up with what is driving traders and the market. Occasionally I become intrigued when the major services like Bloomberg or Reuters start to talk about sentiment as a driver of the market and start to cast my line a little further.

You see, “sentiment” is the lazy commentators excuse when he or she cannot find a “standard” macro, political or news driven story for a currency move.

When I started to read about what had been happening on Thursday morning, I was amazed that the more I read, the less was being said. I tend to avoid calling ex-colleagues for comment or their opinion since I have left the “evils” of the banking world behind, but for the first time in a while I called a few guys to get their take as the moves that had been pushing the market to test significant levels.

They told me about concerns that were surfacing about the level of Government debt in the U.S. which was reaching close to one trillion dollars (that is a lot of zeros!) and following the correction in equity markets the dollar was beginning to lose the interest rate advantage.

It could be called sentiment but it’s so much more!

And in Cryptoland

Talking of corrections, Bitcoin had a good week despite a BBC documentary that aired on Monday where the commentator tried to explain Bitcoin but only succeeded in muddying the “criminality waters” without mentioning the benefits in the wider world. Then I read that certain couples heading for divorce are “hiding” their assets in bitcoin and other cryptocurrencies to avoid disclosure.

Every three steps forward for this topic seems to be followed by two steps back. The very nature of Bitcoin is that it is unregulated and therefore lives outside the norms of society

When borders were removed from EU countries the illicit movement of drugs, guns and people became far easier and so it is with Bitcoin. The police will need to do more than “chase the money” to deal with criminal behaviour.

I read this week that banks are going to start offering services to assist in ICO’s for their customers; advertising that this will give them an “air of respectability”. I have even heard of underwriting being offered.  

ICO’s are a lot like websites in the late nineties they are seen as tech-driven phenomena and not for “ordinary businesses”. Now, you can’t start a business without considering digital marketing and SEO etc. That is the fear of the finance industry that they will be bypassed by progress and the raising of funds will pass them by.