If You Never Cash In Then What's The Point of Playing. Polemic's Farewell.

It's been a long time since I rock and rolled,
It's been a long time since I did the Stroll.
Ooh, let me get it back, let me get it back,
Let me get it back, baby, where I come from.
It's been a long time, been a long time,
Been a long lonely, lonely, lonely, lonely, lonely time. Yes it has.

Led Zeppelin


This will be my last regular post so please indulge me in a little retrospection. Macro Man will have to morph into a new beast but more on that later.

As has happened with my great TMM friends CPMPPI and Nemo before me, my life is changing in a way that will prevent me from being able to devote the attention to this blog that it deserves. After twenty five years of service in the City I am about to make a huge break and move on to a completely different project.

When I took on the keys to Macro Man from the original a little shy of four years ago, as part of the three man Team Macro Man, I was at once daunted with the prospect of having to write properly for the first time in my life (a skill which I never felt I was particularly suited to, having an almost dyslexic inability to spell) and a fear of how to combine a background that was not reflective of either the original Macro Man nor my team member's expertise as fund managers in their own rights, with my own views on the markets. For I have always been on the sell side of the fence where FX has been my specialty (where the overlapping bits of all the other asset classes meet in the centre of the asset Venn diagram) and this has naturally lead me to have a broad asset interest. In FX we tend to have to have a clue as to what's going on in the world as a whole as unlike Bond or Equity sales, we can hardly say "My dollar is greener than his, buy mine".

But this function of other asset class’s factors driving FX would often lead to trades that though intuitively sounding right, would, when analysed along their own logic trees, make betting on a roulette roll look preferable. For example a typical FX patter would run along the lines - Iran is making aggressive noises in the middle east (chance that it really is aggressive 80%), this means that global oil supply may be threatened (80%), which means that oil prices may go up (80%) which means that Norwegian oil revenue would go up and that the country balance of payments will benefit (80%) and that would mean that their FX rate will appreciate (80%) and meanwhile Japan as a net oil importer will see its current account suffer (80%) and so the currency ]go down (80%) so therefore buy NOK/JPY. Which is great to argue when each step of the argument has an 80% outcome but when you sum all those 80%s it isn't many steps before you are below 50% from the original point and in the final case only at 0.8^7 = 21%. Whilst the example above is loose and subject to nit picking I hope it gives and idea of how quickly the odds drop and would often lead the realist in me to asking people wanting to buy NOK/JPY on such an argument why they didn't just buy oil. Which sort of didn't make me a good FX salesperson. But it's a good example of where Pink Flamingo's are fluttering onto lawns that they really don't belong on.

But as we know, the world of FX is populated by many characters each with their own behavioral biases, both on the client side (client menagerie here) and the sales side (sales menagerie here). One day I hope to sit down and write a book titled "The Players Around The Table" to flesh out my understandings of the behaviorally different poker players around a markets table. It is behavioral as much as mathematical. In fact as the maths is naturally more predictable than the behavior, it instantly makes a lot of the maths redundant as a lead indicator as it gets behavioral discounted ahead of time. As we have so often seen, mathematical trading models have to be adaptive to cater for the behavioral feedback loops they create in their own markets. TMM have been a long proponent of fading pack behavior and our facetious development of Dinner Party Indices, Taxi Driver Indices et al were all sharp references to such.

But the world of FX does appear to be changing fast. The old world sell side is starting to see the pond dry up with fish fighting for margin against the machines that are cutting spreads to suicidal slivers under the drying glare of the new regulatory sun.

It is somewhat ironic that the regulatory intensity designed to flatten the playing field across banks to the customer's benefit is actually creating an elevated plateau of super players who are protected from competition by the cliff cost of entry that new regulation is imposing. Perhaps this could well be the regulator/policy makers plan, with the whole business being pushed towards a model of a single super platform which, voila, is easier to manage from a regulatory control perspective. Which leads one to wonder what edge the banks will have in the future world of FX which is currently suffering its own schisms as the authorities' investigations into WMR fixing fixing is beginning to highlight general practices that once were deemed acceptable in the "unregulated" market but are now seen otherwise. On that side of things it had always been a dream of mine that when I did start up a large fund I'd name all the component sub-funds names such as "Large Investor", "Smart money", "Triple A", "Asian Sovereign" and finally "Profit taking" and "Stop loss" and end up making more money suing banks for disclosing my name to the market (as they continued to use such terms as "Smart money selling” and "Stop loss buying" to cloak the flows of their other clients) than I would in normal trading.

But anyway, the world is changing and so is my future career. Whilst I will continue to trade my own money and pop back now and again hopefully as a guest poster in any new TMM structure, I am taking up a fantastic offer of a senior post in a successful creative company catering to the needs of those with very large boats. A complete and total departure from my past but not only does this marry up many of my own dreams, it is domiciled by the sea in one of the most beautiful parts of the UK. It's time to cash in a life of City hours and stress for a better lifestyle but no doubt a whole new type of stress. If you never cash in then what's the point of playing?

So it is time for me, Polemic, to bow out and head off into the setting sun. It has been a real thrill and pleasure and I am going to miss Macro Man tremendously as there were moments of pure joy (most notably the single hour that it took CP and I to pen this xmas post through raging hangovers) but I hope that I have left enough tears and laughter in the Archives, Glossary and Top Tips to keep my memory alive. You can still find me at polemic.paine@gmail.com and would be delighted to stay in contact with you all especially the regular commenters who have been instrumental in keeping this blog alive during our off periods. Of course I would especially like to hear from you if you have a very big boat!

So long and thanks for all the fun
Polemic


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TMM will be auditioning for new members so sharpen your quills and sharpen your wit and standby for for more details.