Politics make its mark for hedgies

Over the last five years there have been numerous shifts in strategy by hedge fund managers but there is a two-fold characteristic that has yet to come to the fore, best represented as a test: does your  manager find the Eurozone crisis boring?

This is not a hard test to fail. Seemingly, the only prerequisite of being a macro manager is whether you can guess the next move of whoever is holding the baton, whether that’s Merkel, Hollande or whoever the Greek prime minister is at the moment.

Markets are more correlated than ever, but not only that, they are correlated to the voice of our dear leaders. Hedge funds took a hammering in 2011, many because they misjudged whether micro calls would drown out the macro noise from Europe.

Long term value investors often pride themselves on their ability to root out undervalued companies while openly admitting that they are completely useless at ‘timing the market’. Soon enough this phrase will be revised to reflect that they are useless at timing European politics.

Undoubtedly, things will be a little out of control if we miss Apple’s profits report because we were watching elections in Belarus, but the point is valid whether you like it or not, politics – the shallow party kind – are here to stay.

Akin to currency overlays during some of the wild swings over recent years, we could see a larger and larger proportion of capital protection, or even alpha, come from political, let alone macro, overlay.

With this we could see a changing demographic in the hedge fund world; consultants more familiar with Whitehall than Lombard Street may become the vital player in a portfolio manager’s team. The human aspect of trading, that we all thought was disappearing, may be coming back, just not quite how we thought it would.

As the 1996 Skunk Anasie hit goes, ‘Yes, it’s fucking political’. 

Meet me in the middle

The recent revelation that the London Metal Exchange is polling its members on renminbi denominated contracts has no doubt ruffled the feathers of the occasional blue-blooded patriot, but it is symbolic of an important recognition of the need to foster financial infrastructure. Rather than take it as a capitulation to the East, Britons should embrace the move.

Endless (read droll) debate about recovery/downturn has detracted from what Britain already has. If the LME offers renminbi contracts it will be another signal of the UK’s commitment to sustain and build the soft infrastructure that has kept it’s foothold in the world – finance.

Since 2008, a great deal of political rhetoric has been directed at bringing back manufacturing. This appeals to us as growing our own food and building our own cars seems more worthwhile than bean counting. But this ignores the giant financial machinery that lies behind every new factory, motorway or school.

A lesson from the East

This point is perhaps best illustrated by China and the East’s apparent wanderlust. As well as progress towards an international renmibi trade there has been significant development in the Trans-Pacific Partnership (TPP), a trade agreement between a cluster of countries including Vietnam, the US, Chile and Singapore. Both strategies are aimed at building the soft infrastructure that underpins growth and development.

Further a field, Myanmar, not a country renowned for its astute governance, has seen plans laid for sweeping reform. Earlier this month the central bank floated the kyat, Myanmar’s currency, though in a tight band. The Tokyo Stock Exchange also has plans for a second bourse in the country. Again, these plans underline a recognition of how financial infrastructure can drive economic growth.

Sterling job

Simply put (this is a lazy post) Britons should be gunning for the renminbi; Chinese girls are hot and we want more of them, having remnimbi denominated futures at the LME might help this.

Give to Caesar what is Caesar's

The frustration of the British people, whether you agree with (or understand) the Occupy protesters is illustrated by the camp outside St Paul's and has done so for two weeks.

However, having long since nucleated outside the cathedral, true to form, the Archbishop of Canterbury has given us his two cents, despite the protest almost coming to a conclusion in recent days.

I was previously unaware that the Bible had a section on macroeconomics but that doesn't stop Rowan telling us how things should be done. Down with Capitalism! The corporates have plundered our wealth and violated our young, ah, sorry, I stand corrected, that was the church.

Since when was the opinion of PhD graduate in theology granted pertinent to a debate about a debt crisis?

If we are to take anything from the pulpit into the commons, let it be this; 'Give to Caeser what is Caeser's and give to God what is God's'.

In other words, my olive skinned friends, how about paying some tax once in a while?

Movember

Movember is the crisp goodbye to summer and the embrace of winter. The sunny days are gone and only half a glass of ouza is left. This is a time of solemn contemptagion. It seems fitting then that we should don our mustaches in recognition of George Papandreou, the man who sorted this whole thing out.

Fears of eurozone collapse had been growing, just yesterday morning Merkozy explained his concern; 'I am ingreecingly worried about the eurozone's chances of coming Acropolis'.

These fears have been abated however. Calls to 'shave off your tash and relax' because the leader of the most influential powerful country in the world has given the Greek people the dignity and representation they deserve; a seat in the dragon's den.

Using the vast sums of spare cash garnered from years of prudent investment the Greek people get to decide who should receive the £100,000 in return for a share of the company.

Initially there were concerns whether you could fit so many Greeks into one small room, but fortunately many of the nation's spines have seemingly disintegrated or become so flexible, that, with a little bit accountancy fraud and gross negligence, they can all fit in one room and decide the fate of the rest of the world.

The den will be shared by Jedward, Boris Johnson, Tony Blair Associates and Bob Diamond.

I would like to mark this momentous occasion by joining in the Movember movement and commemorating, via mustache, one of the most pathetic, cowardly political decisions ever made by a human being.

India: ripe for business

Looking at the BSE Sensex over the last year, one might think India is perhaps not the wisest place to put your money. It seems most fund managers would agree. The region is hemorrhaging money like a Weimar printing press.

On top of that, following a return to risk appetite after 2008, foreign direct investment has chosen China over India 1:5 in 2010. This is most often attributed to poor infrastructure and corruption. Never mind.

Expounding the situation at the moment is high inflation. The Reserve Bank of India has raised interest rates 12 times since March last year in an attempt to stem 'stubborn' inflation.

What seems apparent though (I hesitantly suggest), is that there is a severe lack of investment in India, and it is this, not a wide money base, that is causing inflation.

Once the RBI decides the interest rates can't possibly go any higher,  the only way will be forward and up for the economy.

In the mean time, India has many hands chasing few goods; ripe for an import business.

Asia's trump card

I recently read a report from a small fund that specializes in stock picking in some of the less glamorous Asian countries. His economic views were refreshingly naff and cynical, which suits me very well. In my experience of being very cynical and always right I can say that the two must be linked.

'All governments are stupid (except Singapore's)'. I think the point he was making is this: Asian governments are a lot less... democratic than the West. Putting aside the lack of welfare this is probably how things need to be (at the moment). At the expense of hedging stupid decisions out of parliament we are now at a situation that we can only hinder ourselves as there are too many people in power and too many of them are too accountable to the electorate.

Accountability is a great motivator, but we have forged it into an awful inhibitor. I wouldn't like to assume that the entire British electorate are unable to think for themselves, but as a closet misanthrope I am apprehensive about their ability to decide our political/economic future.

If the rebellion in the recent vote for a referendum on the EU had been successful we would have had a nation of mostly uneducated, financially bruised, easy to incite people voting on our EU membership. The reason we at Smutonomics are so confident in this view is that we know few political commentators who have a resolute view on the matter. Furthermore, it is such a divisive issue that it surely implies complexity. I would rather have a bunch of ex-Etonians study the subject and decide for me.

With the exclusion of Kim Jong Il's economic brilliance Asia looks like it will continue to benefit from the lack of electorate interference for some time.

Why Occupy St Paul's is 99:1 destined to fail

Each day during my lunch break I find myself wandering over to St Paul's Cathedral, not through divine guidance, but because of the growing collection of tents called Occupy, drawing me like a moth to flame, a fly to poo.

This has led me obtain for myself a souvenir, a sign which reads, 'This is not an anticapitalist protest', except 'not' is crossed out. Then rewritten. Then underneath, someone has penned in 'Who are you to decide why we are here?'.

This is exactly why the protest will fail. Who knows what these people believe? Beneath the 'Capitalism is  Crisis' banner, holding my 'not an anticapitalist' sign, I see a sign reading, '1984 wasn't meant to be a manual'. 

How is it possible to confuse an over-leveraged state with the cold brutality of futuristic communism?

The protest is a maelstrom of calls for tax reform, end to cuts on libraries/students/the NHS and a war cry on banking. There is no discernible message which cuts through the fug of weed smoke. They need a leader like Bob Crow, Jesus or Ed Milliband, to help them rebrand their corporate image.

To try and understand why there is such a severe lack of organised motive in the Occupy LSX (by proxy not reality) movement Smutonomics undertook a survey: 

Why are you not joining the protesters outside St Paul's?

1% I am already a protester.

99% If I attend the protest, I will not be able to attend my scheduled Job Centre Plus meeting.

Hmm..

If socialist values amongst Occupy members are to find a political voice in the City then they have to be able to present themselves with a lot more coherency and solidarity. Unfortunately for them, it looks like they've already fudged it.