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And Finally…

If the global investigators who are jumping on the bandwagon in the hope of receiving a cut of the fines’ pie – actually, that should read “if the global investigators who are seeking to improve our markets” but it’s too late now, it’s out there – are extending their enquiries into the sales world, I have a couple of instances from the past weekend that highlight how they might need to be careful.

It’s all about the ignorance of most people when it comes to markets.

I had two insights into how the outside world views markets, the first came when I attended the circus that is a house auction in Australia. It’s quite an experience to stand there and watch three or four groups bid publicly (it was actually in the front garden of the property in question), in front of a crowd of more than 50 onlookers.

The house in question was sold for $500,000 above the listed price, to a gentleman who happened to be standing next to me. Thankfully I refrained from informing him he had just been mugged in public and there was nothing he could do about it! What struck me most though, was being party to not only the real estate agent’s and auctioneer’s patter – they are paid to boost the price – but the conversation the bidders were having.

One line struck me in particular (and ensured I will never take Mrs L to an auction as an interested buyer) when the wife of another bidder (this one standing in front of me and getting very emotionally involved) remarked “let’s bid again – house prices never go down, we’ll have our money back in a year”. In the lady’s defence the auctioneer was also very keen to remind people in the audience (for it was a show as much as anything) that even at $300,000 above list price “this was still a bargain because it will be even higher next week”.

I have no idea what house prices in Australia, or anywhere else for that matter, are going to do in the future, but talking to others in the audience and even having a quick word with the real estate agent confirmed to me that just about everyone in the audience shared the same view – “house prices don’t go down”.

I am sure there are similar discussions being held in the UK where the housing market has been strong, as well as several other locations around the globe.

Does no one remember what caused the GFC in 2008? It was exactly that attitude, along with some lax oversight of lending policies, that triggered a housing collapse in the US.

My other instance is actually the opposite opinion expressed by a newspaper in Canada over the weekend (yes I have a really exciting social life – I check out the Canadian press on my days off!). The paper’s headline noted that the Canadian dollar was ripe to go lower because it was at its most overvalued since 2006.

So if I get this right, this is the “what goes up, must go down” argument? This is just as nonsensical as the “market will always go up” argument and highlights what a shallow and ill-informed view of markets most people have.

I feel moved to quote what I think is John Maynard Keynes (and yes, this is a first) – “The market can stay irrational for longer than you can stay solvent."

Clearly some perspective is needed and this is where the human contact comes in – someone with experience to at least provide some guidance. It is this requirement that makes me nervous with regards to recent development among investigators looking into the sales relationship.

There are plenty of people out there who require some advice – and this advice does not come cheaply, certainly not free – it is normally paid for (in FX at least) through a spread.

Take away the ability of a salesperson to guide an ill-informed client, someone who has to do a trade but has no real knowledge of markets – and there are plenty of them about – and you are providing a recipe for more ill-informed trading such as what took place in the run up to the GFC.

There are too many people in the world who use markets but don’t understand them, especially the need for an unemotional approach to analysis. Regular readers will know I am historically no lover of salespeople, but that does not mean I believe they are surplus to requirements. The opposite is true.

There are too many people who need “hand-holding” and if providers cannot be paid for that service then it will be withdrawn. If that happens, you might as well take the unsophisticated user of the FX market and throw them into a shark tank – it will be good training for the years ahead.   Twitter @lamboPnL

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