'a day in the liffe' has had it with experts
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Friday, 12 January 2018


By Richard Matthews, 12 January 2018


It’s the time of the year, or to be truly accurate shortly after, that we shine the crystal ball, shake the tea-leaves and make predictions for the coming year. Instead of sticking my neck out, I’m going to  glance over my shoulder and look back. I am going to start by going right back to the days when I was a floor broker on LIFFE. I remember a client asking about the price of the sterling Red June/ Red September spread. I started answering by saying, “ I think it is…” only to be stopped in my tracks with this retort:


“Listen dog’s breath, I don’t pay you to think. What’s the f***ing market?”


A fair point, somewhat harshly made, but a fair point. A broker survives on his knowledge, not his guesswork. Those words, and more importantly, that sentiment have echoed in my brain quite a lot recently especially now that the 2018 predictions for the markets have been published.


Let's look back a little over the last couple of years and see what the pundits were predicting. Let us start with Brexit. Christine Lagarde, Managing Director of the International Monetary Fund warned of market turmoil, plunging house prices and streets full of giant lizards. She actually stopped short of the lizards, but only just.


Ahead of the poll, Lagarde said the outcome of a decision to leave the EU ranged from "pretty bad to very, very bad". I suppose the clue to her negativity is in her surname. Meanwhile, the Leavers promised pretty much everything with the infamous red coach emblazoned with a weekly “£350m into the NHS” being the most outrageous claim. Leavers defended their claim by saying that this sum “could” go into the NHS. Ah yes, another favourite, the conditional tense. Allow me to rant a little. In Latin-based languages, the conditional tense takes a subjunctive, and whilst being neither equipped nor pedantic enough to explain the vagaries of language, I will just say that the subjunctive draws attention to the weakness of the tense. If I had only one wish for this year it would be for editors to cut any headline containing “could”.



Last year, the masses-the collective-the public were presented with one doom-and-gloom scenario after another from the get go. At the very least, Donald Trump and Brexit would be “DISASTERS” for the world, while French elections would endorse the right-wing Marine LePen. For an accurate example, look at the redoubtable Goldman Sachs for some market guidance. Goldman’s predicted that sterling would fall to $1.14 from $1.25. It’s actually trading around $1.35.


Goldman also saw 10-year gilt yields rising to 1.65 pct from 1.28 pct when in fact they fell to 1.19 pct. Oops.


The in-house experts at HSBC - its bevy of analysts, economists and strategists - were not much better, forecasting that the pound would hit parity with the euro. Morgan Stanley was a bit more optimistic when its team of experts called the pound at €1.02. At least pro-Brexit Roger Bootle called it better when he predicted €1.12 (current market €1.13). Interesting though that Goldman’s predictions reflect the political views of its CEO, Lloyd Blankfein. Or are they just genuinely poor at calling the market, and as such ignored?


In the last year when markets have been driven by politics as much as anything, who, a year ago, saw Emmanuel Macron winning the French elections over Le Pen? Did one pundit actually see Theresa May calling a disastrous election? Or foresee Angela Merkel's inability to form a government months after German elections? I think not.


Trump was and still is seen as a disaster for the United States by the media, and the record-breaking run in the US stock markets was not even dreamt of. In fact, many investors were panicked, either dumping funds, selling stocks or seriously wringing hands in consideration of such moves. 


Crypto currencies? A fad no one could possibly take seriously when Bitcoin was trading under $1,000 on 1st January 2017. We all know what happened there. Jamie Dimon eat your heart out. I’m still waiting for Britain to collapse and its economy to implode a la Mark Carney’s guesswork. I guess it’s easier looking back than forward.


But look forward we must into 2018 when we will see Jay Powell take Janet Yellen’s place, a banker replacing an economist, as chairman of the Fed. One of the challenges that many are seeing is the money from the Trump Tax cuts and what impact this will have. Naturally, most mainstream cable news networks and national broadcasters see few benefits, mostly negatives, that is when they're not diverting and distracting with the "Russia investigations."


But the big questions in the Trump tax plan remain. The estimates of the repatriation of overseas’ wealth vary but a figure of around two-trillion dollars seems to be the ball-park figure. Is this money already in dollars or sitting in local currency? Is it in bonds and do those need to be sold in Europe, while US ones bought? Will the sudden impact of the money hitting the economy be inflationary? And if so, will short-term rates rise whilst long-term rates drop, and will the yield curve go negative? Just some of the challenges facing Powell, as well and no doubt there will be more. His experience with the experts at Goldman and the Carlylye Group "could" pay off in his role as chief policy maker.


In Europe, challenges on the political front range from Merkel to May and from Calais to Catalonia. The markets also have to deal with the ECB slow-down in asset purchases.


So here is one New Year’s resolution that I am not going to make: No more predictions in 2018. Instead, I am going to start with a wish. I mentioned earlier the use of the conditional tense and how I hoped that the word “could” normally followed by utter nonsense was seen less in headlines. I am going to expand that wish a little bit to include that we stop having to digest what “an expert” says and concentrate more on expertise. Or here's a thought, developing a little expertise ourselves. Remember the markets: An expert will tell you what the price could be, but someone with expertise will tell you what it actually is. So please editors remember this when publishing, and traders just look at the numbers. They never lie.


(This column is dedicated to Gary Bone, who gave up his trading rights over the Christmas period. Gary and I were like brothers for quite a number of years. We worked hard, played hard and drank hard in the late ‘70s – early ‘80s at R.P. Martin. He was without doubt one of the greatest brokers I ever worked with and he has died much too young. Gary had a great escape phrase when asked a price he couldn’t quote. He would stall and buy time with “I will just pop into the orchard and pick a price for you“, leaving the dealer, who had asked the price, stuttering.

His other phrase as we’d stagger drunk to bed in the early hours before work was“ See you on the beach, pet “. Well, Gary, get a cold one in for me and I will see you there one day. God Bless you, old mate.)


Richard Matthews, who began his career in 1973, is a former trader-broker in the London money, futures and foreign exchange markets. Twitter @dickiematthews5


This column is the opinion of the author and does not necessarily reflect the opinion of LiveSquawk.








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