We are about to depart for John Muir’s magnificent “Range of Light,” yet before the glistening peaks and giant Sequoia let’s utilize this post to punctuate one of the more remarkable phenomena we have ever observed in this arena - that would be none other than the gaping disconnect, the chasm between observation and economic reality as linked to the UK.
Those who are interested in capturing near to intermediate-term FI or FX price change understand that at least two elements are needed: knowledge of that which at any moment is priced in, and, knowledge of that economic reality just ahead - the economic release stream. But we are mortals; rarely can we fetch up either, let alone both, without a miss. So that won’t do.
However, if we can harness or capture or isolate that which we at this shop call “the flaw” common to or impacting a given point of observation, that flaw imbedded in a given consensus then we have just established a major leg up over the majority of other observers / traders. We are working exactly backwards to conventional strategy making. We don’t have to be right on the release as we have the odds of direction of miss instead.
At least for us the key is the combination of right-brained thinking and the understanding of crowd dynamics; this provides the edge.
Readers can free themselves from minutia, from the in-house forecast for example and other leavings of the left side of the brain; they can divorce from the information overload that serves only to obscure reality just ahead. Those that persist in the old way are relying on the wrong side of the brain for deliverance.
Now, let us review the recent and truly fascinating experience with the UK.
Recall that not too long ago observers figured the UK economy had seen its last sunrise; double-dippers were everywhere. A simple call to a shipper, a service outfit, a manufacturer or a CFO – our practice – did not support this view; nevertheless, this consensus continued to snowball.
Always with crowds, errors are exaggerated and views taken to the extreme, lynch mob or analytical mob. Next, there is inbreeding to crowds; forecasters eat, dress, talk and recreate together. There is also pressure within the group to go along, not to be a standout. This all creates vulnerability; indeed, analysts H2 ’12, all of 2013, and Q1 ‘14 were very vulnerable, vulnerable because they surrendered their own instinct and common sense for that of crowd think and impulse. They were flattened as a result. Just what triggered this particular stampede, this wildebeest-rush-through-croc-invested-waters, even we’re not sure; but it happened and most certainly it will happen again. And when it happens, it represents the nearest thing to a pot of gold most traders will ever see; but the “seeing” is reserved for, is gifted only to those who can balance and treat intuition as an equal partner to logic.
And so it was that those who had been so thoroughly and so consistently wrong about the UK early on, still refused to change direction even though signs all along the trail over which they rushed read “Danger, Danger.”
And even after being steam rolled they could still not abandon group think, still willing members of the crowd even though if they were thinking in isolation, as individuals, they might have acted differently.
We presented on 10/25/2012 a sketch entitled Navigating the UK, and then regular updates to present - just where to look, which sectors would blow through estimates and why; and early on, with translation to the term structure. It all worked very well.
But apparently most did not read our blog. Thus, recall that following Osborne’s budget a typical comment from a street economist was that, well, ok, we missed the growth alright but it’s “the wrong kind of growth.” (Well, sure, that makes it ok then that you couldn’t forecast your way out of a wet paper bag!) What about business investment being up 8.5% Y/Y Q4, ‘13? We don’t trust that figure was the answer from the crowd. And by political instinct the crowd could never bring itself to give credit to the administration, even when it was found that manufacturers are now shifting manufacturing back to the UK because of the more business-friendly environment, one spawned by the administration.
The wrong kind of growth huh? A recent Deloitte survey found that 81% of CFO’s plan to add to staff and that 80% of canvassed CFO’s plan to increase capital expenditures.
The wrong kind of growth, when the recent BCC survey showed service firms had the fastest growth in exports on record, Q1? Think not.
And the consumer? The crowd, the willfully blind, refused to acknowledge the obvious. This activity was especially strong in 2/14 despite awful weather. How about money? From the recent REC data, the hike in average salary of permanent staff is up by the most since 7/07 for goodness sake. Staff demand is through the roof. Wages are higher in real terms. We find from the CIPD that hiring plans are the best since ’07.
These “surprising” numbers are not so much the bounty for us as is the pattern. We can’t describe exactly how we detect the launching of a group rush; we know we are no smarter than anyone else out there. But we do know it is the right hemisphere of the brain that provides the lift, the leg up.
Try it; certainly in your own way, but try it. And then report back; even call us (415-342-3886).
Robert Craven
Those who are interested in capturing near to intermediate-term FI or FX price change understand that at least two elements are needed: knowledge of that which at any moment is priced in, and, knowledge of that economic reality just ahead - the economic release stream. But we are mortals; rarely can we fetch up either, let alone both, without a miss. So that won’t do.
However, if we can harness or capture or isolate that which we at this shop call “the flaw” common to or impacting a given point of observation, that flaw imbedded in a given consensus then we have just established a major leg up over the majority of other observers / traders. We are working exactly backwards to conventional strategy making. We don’t have to be right on the release as we have the odds of direction of miss instead.
At least for us the key is the combination of right-brained thinking and the understanding of crowd dynamics; this provides the edge.
Readers can free themselves from minutia, from the in-house forecast for example and other leavings of the left side of the brain; they can divorce from the information overload that serves only to obscure reality just ahead. Those that persist in the old way are relying on the wrong side of the brain for deliverance.
Now, let us review the recent and truly fascinating experience with the UK.
Recall that not too long ago observers figured the UK economy had seen its last sunrise; double-dippers were everywhere. A simple call to a shipper, a service outfit, a manufacturer or a CFO – our practice – did not support this view; nevertheless, this consensus continued to snowball.
Always with crowds, errors are exaggerated and views taken to the extreme, lynch mob or analytical mob. Next, there is inbreeding to crowds; forecasters eat, dress, talk and recreate together. There is also pressure within the group to go along, not to be a standout. This all creates vulnerability; indeed, analysts H2 ’12, all of 2013, and Q1 ‘14 were very vulnerable, vulnerable because they surrendered their own instinct and common sense for that of crowd think and impulse. They were flattened as a result. Just what triggered this particular stampede, this wildebeest-rush-through-croc-invested-waters, even we’re not sure; but it happened and most certainly it will happen again. And when it happens, it represents the nearest thing to a pot of gold most traders will ever see; but the “seeing” is reserved for, is gifted only to those who can balance and treat intuition as an equal partner to logic.
And so it was that those who had been so thoroughly and so consistently wrong about the UK early on, still refused to change direction even though signs all along the trail over which they rushed read “Danger, Danger.”
And even after being steam rolled they could still not abandon group think, still willing members of the crowd even though if they were thinking in isolation, as individuals, they might have acted differently.
We presented on 10/25/2012 a sketch entitled Navigating the UK, and then regular updates to present - just where to look, which sectors would blow through estimates and why; and early on, with translation to the term structure. It all worked very well.
But apparently most did not read our blog. Thus, recall that following Osborne’s budget a typical comment from a street economist was that, well, ok, we missed the growth alright but it’s “the wrong kind of growth.” (Well, sure, that makes it ok then that you couldn’t forecast your way out of a wet paper bag!) What about business investment being up 8.5% Y/Y Q4, ‘13? We don’t trust that figure was the answer from the crowd. And by political instinct the crowd could never bring itself to give credit to the administration, even when it was found that manufacturers are now shifting manufacturing back to the UK because of the more business-friendly environment, one spawned by the administration.
The wrong kind of growth huh? A recent Deloitte survey found that 81% of CFO’s plan to add to staff and that 80% of canvassed CFO’s plan to increase capital expenditures.
The wrong kind of growth, when the recent BCC survey showed service firms had the fastest growth in exports on record, Q1? Think not.
And the consumer? The crowd, the willfully blind, refused to acknowledge the obvious. This activity was especially strong in 2/14 despite awful weather. How about money? From the recent REC data, the hike in average salary of permanent staff is up by the most since 7/07 for goodness sake. Staff demand is through the roof. Wages are higher in real terms. We find from the CIPD that hiring plans are the best since ’07.
These “surprising” numbers are not so much the bounty for us as is the pattern. We can’t describe exactly how we detect the launching of a group rush; we know we are no smarter than anyone else out there. But we do know it is the right hemisphere of the brain that provides the lift, the leg up.
Try it; certainly in your own way, but try it. And then report back; even call us (415-342-3886).
Robert Craven
