Snapshots watched the excellent documentary AlphaGo on Netflix recently. It is about an algorithm of the same name created by Google’s Deepmind team to beat Lee Sedol, the world’s best Go player. It is a moving account of a man’s life, work and passion pitted against an emotionless machine that can perform a mind-boggling number of calculations.

The State We Are In The rules of Go are relatively simple even if the permutations of each move branch into the centillions (that’s very large!).  The markets are even more complex. At Cairn Capital, we have a proprietary technology system called Nexus that we have been developing since 2004. It is very rich in […]

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Snapshots loves movie quotes and the following springs to mind this week: “Causality. There is no escape from it. We are forever slaves to it. Our only hope, our only peace, is to understand it, to understand the why.”*

Causality This week the market has been focusing on the spike in volatility and the unwind of retail funds that have been selling volatility. We warned on these products and the triggers that could lead them to unwind in Snapshots in August last year (Inverse VIX and Accelerators). However, this has diverted the attention of investors […]

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Snapshots has not found any inspiration from the world’s leaders in Davos. We asked Amazon’s Alexa for inspiration and heard some great existential quotes from the eccentric British philosopher, Alan Watts.

Telecoms Unfortunately, Alexa does not provide credit research yet so we still have to do our own.  It always helps to start looking where large volumes of debt creation has or is taking place. The current credit cycle has seen some aggressive debt funded M&A by the telecom industry as it tries to dominate in […]

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Snapshots is trying to avoid the Aussie flu which is causing the worst flu season in the UK since the 2011 swine flu. The Centre for Disease Control recommends a six feet clearance from contaminated persons.

The Six Foot Tall Man Speaking of six feet, one of our favourite quotes in 2017 was: “Never forget the six-foot-tall man who drowned crossing the stream that was five feet deep on average.”* A good example of this was a pool of Buy To Let mortgages that we analysed recently.  It advertised an average (mean) […]

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Snapshots is a big fan of the mindfulness app Headspace. Keeping a clear head, being open-minded and letting go of presumptions is going to be very important in a post Quantitative Easing environment.

Quantitative Tightening This is particularly important because of the rapid pace of interest rate normalisation in short maturities. US Libor rates are at 9 year highs. China Libor rates are edging towards decade highs. Euro Libor rates however, are at decade lows. These coincide with the relative actions of the central banks. The Fed is in the third […]

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Snapshots is settling into the new year, European dealers and investors are adjusting to trading in a MiFID II market structure and the risk markets are sprinting out of the starting blocks.

Greed and fear The tone of all the MiFID II compliant research flooding our inbox is overwhelmingly positive.  The MiFID free blog-sphere paints a similar picture.  Global growth at 3.7% is the highest in seven years and is widely expected to continue. We said that 2017 was the end of ultra-loose monetary policies.  That leaves […]

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Snapshots thinks Emmanuel Macron’s global call to “Make the planet great again” is politically and economically clever.

  Clean Capitalism This is because renewables are becoming a major force in the world energy markets – a theme we first mentioned in Snapshots on 2 June 2017.  A report by the UN Environment Programme states “new renewable sources (…) accounted for 55.3% of all the gigawatts of new power generation added worldwide last […]

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Snapshots has been saying for some time that 2017 will mark the end of ultra-loose central bank monetary policy. This has coincided with jitters around some highly leveraged corporate entities

Snapshots has been saying for some time that 2017 will mark the end of ultra-loose central bank monetary policy. This has coincided with jitters around some highly leveraged corporate entities. Steinhoff Interest rates have not moved enough to cause broad interest coverage issues and the capital markets remain very open for refinancing. However, the market is […]

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Snapshots is an amused bystander watching the gravity-defying performance of Bitcoin. 

A history of ledgers The distributed ledger technology behind Bitcoin is certainly very interesting. However, ledgers are not new. According to Wikipedia, the first records of ledgers come from Babylonian stylus and clay slabs dating back to 2600BC. Since then we have had the invention of the double-entry bookkeeping system by Italian merchants in the 1300s, the creation […]

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Snapshots caught up with his dad for Thanksgiving lunch yesterday.

We talked about grandad who came to Newcastle in the 1950s as a Commonwealth immigrant and registered as a peddler. This involved selling household goods out of a suitcase on credit. The credit aspect was appealing because collections meant an opportunity for him to sell more goods. Losses given default were 100% and so it […]

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Snapshots is digesting the barrage of scandals, fast moving geopolitics, policy changes and market price action over the past two weeks. After a period of low volatility, the market seems to be waiting for some action before the year is up.

Confirmation Bias We are reading Michael Lewis’s latest book the “The Undoing Project” which is about the Nobel Prize winning behavioural economists Tversky and Kahneman.  The book has made us question if a degree of confirmation bias is setting into this market.  It has continued to rally with very low volatility despite increasing warnings of […]

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Snapshots was a big fan of the Welsh alternative rock band the Manic Street Preachers at university.

Their hit single “If You Tolerate This Your Children Will Be Next” and the song’s line “If I can shoot rabbits/I can shoot fascists” come from the Spanish Civil War that Welsh volunteers surprisingly fought in.  We highlight this only to illustrate how deeply emotive politics is. As investors we do not get involved in […]

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Snapshots is impressed by all the records currently being broken. Lionel Messi’s package to remain at Barcelona despite the Catalonia troubles. The FTSE all share index despite Brexit. They are proof that you have to look underneath the soundbites we are bombarded with to truly understand what is going on.

Little Blighty On The Down* Central Banks are rolling back Quantitative Easing and their associated liquidity programmes. One such programme, the Bank of England Term Funding Scheme, is expiring in February next year. It currently stands at £75bn and has provided UK banks with cheap term funding to make consumer and business loans. Some commentators have […]

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Snapshots can’t help but feel sorry for Theresa May after her disastrous conference speech and the continued infighting in her party. But then politics is a bloody and cruel sport.

The original 1990 series of House of Cards was set around a Conservative Party leadership challenge and is said to have drawn inspiration from Macbeth and Richard III.  For TV buffs it is a must see. My turn on the policy joy-stick The pendulum is swinging from central bankers and monetary policy to government and […]

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Snapshots has been filing expenses for our recent US road trip and still can’t believe we were charged $9 for a black coffee in Austin!

Inflation and Slack That is just an anecdote which in itself has no meaning but we note that some economists are calling the recent disinflation transitory, particularly in the US where a large component was caused by a wireless price war. Oil prices are also starting to pick up again (albeit from low levels). With oil supply […]

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Snapshots attended a fascinating workshop run by Good Judgement Inc yesterday

Behavioural Finance Good Judgment is a commercial spin out of a project that was funded by the US Intelligence Department after the forecasting failures of 9/11 and Iraq’s Weapons of Mass Destruction. The project was a big statistically measurable success and formed the basis of Phil Tetlock’s excellent book “Superforecasting: The Art and Science of […]

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Snapshots is watching live updates of Hurricane Irma and hoping for the best outcome for people and their livelihoods in her ferocious path

Written records show hurricane impacts in the Caribbean going back to 1600s.   They are unfortunately a part of human history.  They used to savage trading ships, fishing vessels, homes, plantations and cause many deaths.  The good news is that people and economies always bounced back.  Current damage assessments show the economic impact of Irma for […]

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Snapshots is currently enjoying the TV series Ozark on Netflix

Netflix and the HY bond market Speaking of which, we read with interest that Netflix increased its cash burn from $1.7bn last year to $2.5bn this year on rising content costs. The content is really great, which is what you would expect for a company that has produced 4 of the 10 most expensive TV series […]

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Snapshots’ paternity leave has been delayed by a few days. Thankfully it has nothing to do with escalating tensions with North Korea but is due to spinning babies and the Left Occiput Anterior

Fire and Fury The recent market rally stopped in its tracks and reversed quite sharply this week.  The reversal coincided with Tuesday’s comments by President Trump on further aggression from North Korea being met with “Fire and Fury”.  Also, Disney ended its distribution deal with Netflix which caused a pause in the perpetual business model […]

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Snapshots has been told that today is International Beer Day. According to Wikipedia participants are encouraged to “step out of their domestic/locally brewed comfort zone and sample a beer from another culture”. We’ll cheers to that!

Zero balance transfers and stoozing We have mentioned UK consumer leverage as an idiosyncratic concern in the current credit cycle.  One practice that demands scrutiny is EIR (Effective Interest Rate) modelling of credit card balances that are transferred at 0% for up to 49 months.  Banks assume an average balance, maturity and EIR for the […]

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Snapshots is wondering if the (very tight) air force flight suit that Emmanuel Macron wore this week is a sign that Europe has its mojo back. Indeed centre-left candidate Martin Shulz’s campaign slogan for the upcoming German elections is MEGA, which stands for “Make Europe Great Again”!

Central Bank Shuffle Despite the recent fall in inflation prints we believe the focus of the major central banks is still on policy normalisation.  The broad direction of travel is the same for the FED, the BoE, the BoC and the PBoC.  This is quite possibly being coordinated to prevent destabilising FX moves. We describe […]

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Snapshots is wondering if Christopher Nolan’s new movie Dunkirk will win an Oscar. Some critics are already calling it the greatest war movie ever made. As avid movie buffs we can’t wait to find out tonight

Back to the markets and Snapshots is analysing credit opportunities as the markets pause ahead of an August summer lull.  We have been saying for some time that opportunities in liquid credit are sparse away from bank capital.  Structured credit still presents good risk adjusted value and we are excited about a new asset class […]

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Snapshots is trying to stay cool in the unusually hot London weather and it looks as though the markets are struggling to stay cool too

Co-ordinated unwinding This is because global yields are still reeling from the aftershocks of last week’s central bank messaging.  This is now feeding into the equity markets and credit spreads.  The obvious risk here is that Mx Market (yes that is a deliberate gender neutral prefix) over-reacts and over-discounts what ze (another gender neutral prefix) […]

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Snapshots was up all night watching the UK election results roll in

The result was a surprise.  However, this morning the Conservative Party reached agreement with the Democratic Unionist Party of Northern Ireland to form a minority government which should mean a soft Brexit stance with the EU.   We think this explains the muted reaction in the FX, rates, credit and equity markets this morning. Banco Popular […]

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Snapshots has been listening to the Black Eyed Peas and is wondering “where is the love” in the world?

And is there a quantifiable measure of “love” between human groups that can be analysed and does it follow its own cycle, like the business cycle, the debt cycle or the default cycle?  We will leave that to social scientists and historians to ponder in the new data rich world we inhabit. The Climate Sceptic […]

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Snapshots is wondering if a European renaissance in risk assets is brewing

European Renaissance The original renaissance was a cultural movement that lasted from the 14th to the 17th century and is regarded as the cultural bridge between the middle ages and modern history. The latest renaissance was evident at the recent SALT investment conference in Las Vegas.  Among the reasons cited were lower P/E ratios, higher […]

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Snapshots is wondering why the old market saying of “sell in May and go away and come back on St Leger Day” is still around

Data mining This is because historic simulations show it is statistically not significant. In the words of Ron Burgundy it’s a case of “60% of the time it works all the time”. On a more serious note in the world of big data, machine learning and systematic trading, if a simple seasonal pattern existed it […]

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