Welcome to 2019 – may it be a happy and successful 12 months for you all.
The nice stuff out of the way, let’s revert to type – and talk about the prospects for destruction of the euro.
I have read quite a bit over the past two weeks about how the euro enters it’s 20th year on shaky ground and while I don't actually agree with the analysis, or the fact that the euro may implode in the coming five years, one has to say there are issues bubbling away that may present challenges to the EU as it seeks to reach the drinking age in most US states in one piece.
The annual Irrational for the Call of the Year is always competitive and this year was no different. Obviously the temptation is to hand it to someone who got the markets horribly wrong in 2018 - and the chap who thought Bitcoin's fair value was at $14,000 (or, if you arranged a few ducks in a row $150,000!) is a contender, as are all the dollar bears at the start of the year. The winner truly comes from left field, however, because it's me!
Today’s Irrational is very much based upon the ethos in which the accolades were imagined – in other words it’s based upon nothing more than its ability to irritate me. If we are being honest, this year has not been a vintage one for headlines – I don't know if it’s me but I sense the world is getting worn down by the constant bickering amongst politicians, most of whom turn to (at best) half truths when challenged. Throw in an increasing wariness of publicly stating anything humorous for fear of upsetting someone (which is very easy to do, another facet of today’s world seems to be extreme sensitivity) and the quality of headlines we saw just a year or two ago have gone missing.
With a reminder to readers that there is still time to vote for a real Irrational – P&L’s Socks of the Year (click here), let’s move onto to the next accolade, the “It’s been a tough year for…” award.
The winner might come as a surprise because I, along with many, feel the FX Global Code has made decent progress this past year and has also done a lot of good for the market by providing a clear framework within which people can work.
It’s December, which means the start of my personal awards season – of course what it really means is I can do the modern day equivalent of “fnshd 4 yr frds” (look it up teenagers) and cruise through December without having to give too much thought to original opinion!
Yes folks, it’s the 2018 version of The Irrationals – my favourite themes and stories for the year, presented with tongue very much in cheek, although occasionally lapsing into seriousness. I thought we could kick off with the “Disaster Averted Irrational”.
There was an interesting line in a report in yesterday’s Handelsblatt discussing the impending lawsuit against the banks in Europe and the US. We, along with other news organisations, reported the impending European lawsuit at the time the US papers were filed (although it did apparently come as a surprise to some outlets who reported the European case “exclusively” one week later!) but the Handelsblatt report has a quote from a source at one of the plaintiffs that I found quite insightful and potentially signals a nightmare for the banks facing the case.
The FX industry is advancing how it deals with certain issues, but the pipeline of areas in need of clarification and further debate shows little sign of slowing down. Two areas that concern me at the moment are exactly how platform operators are enforcing their rulebooks - are they being fair and balanced to both LPs and LCs? - and exactly what constitutes "full amount" trading? An open and data-backed discussion will solve the latter, but I wonder if we need an industry ombudsman for the former?
This is a pretty horrible time for CTAs, not only because of the sector's very visible performance issues, but because it's even worse than the numbers suggest. After all, the big selling point for CTAs has always been they are a good hedge in falling equity markets - but they clearly have not been this year. It may not be all doom and gloom, however, for using new technologies and techniques they have the opportunity to re-engineer their models to meet the challenges of the modern market structure.
Today’s column has a problem with complacency and worries about the chances of future generations forgetting the principles of the FX Global Code the way they did previous best practice documents. Luckily, being a “solutions based” forum, it has an idea that some may find controversial to help ensure that doesn't happen.
Why is it controversial? How does employing members of the Cartel and other chat rooms – people who have either faced potential jail time or admitted guilt to the authorities – grab you?
On Monday I called for a radical re-think around the FX industry’s use of benchmarks – and this elicited (and continues to do so) considerable feedback. Re-reading the latest class action over activities around fixes, however, made me realise this case could also end up revolving around pre-hedging – and if it does, then not only do certain industry bodies face a real challenge, but more broadly we have to discuss much more than restructuring one small piece of the market.