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Breslow: "Normal, Violent Or Extreme Political Events Are Now Taken To Be Fully Tradable Affairs"

Taking a break from his "big picture" macro observations, and - at least recently - bashing of complacent traders, algos and central planning, overnight Bloomberg's macro commentator focused on the FX market in general, and why he believes it is the "best" market for those "politically bent", noting five particular reasons for his adoration of FX trading:

  • everything is fair game: "in today’s world there’s nothing local about almost any aspect of the process" and FX is the only place where one can short with impunity"
  • there are no negative connotations associated with shorting: "Every trade involves doing so. You get to attack things without someone questioning your couth. After the U.K. referendum the currency got killed on perceived relative value, but that was all right because the FTSE did just fine. You didn’t see the BOE bemoan the lower pound"
  • so simple, Mrs Watanabe can do it: "In equities and bonds it’s best to first ask how an individual market works and what paperwork is needed. In FX it’s point and click and your prime broker takes care of everything else"
  • all that matters is speed: "It’s in the DNA of FX traders to feast on a headline and then ask what it’s made of. Speed is of the essence."
  • and, best of all, you get to trade first, ask questions later: "currencies the perfect vehicle to get involved in issues one may or may not actually know anything about."

In summary, "If FX didn’t exist, we’d have to invent it..." along with the token stab at crypto traders: "...If only to allow us to convey our views on how others are managing their affairs. Sounds familiar, right? Using currencies over equities or bonds to play these situations has all the actual benefits that cryptocurrency proponents argue make them ideal versus cash for all your criminal activity needs."

* * *

Here's Breslow, in a somewhat whimsical departure from his usual fare:

If Politically Bent, FX’s the Only Game in Town

 

Politics is everyone’s business. And no, this isn’t an off-cycle reminder about your responsibility to please get out and vote next time round. Rather, in today’s world there’s nothing local about almost any aspect of the process. And that’s certainly where traders have come down on the issue. Whether it’s normal, violent or extreme political events they are now taken to be fully tradable affairs. Whatever your level of understanding of the people or issues. And if there’s one place to go that makes perfect sense when expressing your "expertise" on all things geopolitical, it’s the foreign exchange market.

 

If FX didn’t exist, we’d have to invent it. If only to allow us to convey our views on how others are managing their affairs. Sounds familiar, right? Using currencies over equities or bonds to play these situations has all the actual benefits that cryptocurrency proponents argue make them ideal versus cash for all your criminal activity needs.

 

We don’t often know when a political crisis will rear its head. Not a problem for a 24-hour market. Want to deal anonymously with all the protections of off-shore counter-parties? Not a problem. And, if you think the matter is egregious enough, you can leverage up pretty much to your heart’s content. Provided you aren’t stopped out first, changing your mind is quick and cheap.

 

It’s in the DNA of FX traders to feast on a headline and then ask what it’s made of. Speed is of the essence. And there’s no market in the world that is easier to access, by and large has one size fits all universal rules governing how it works, where your money sits and how and when you can get it back. In equities and bonds it’s best to first ask how an individual market works and what paperwork is needed. In FX it’s point and click and your prime broker takes care of everything else.

 

FX also doesn’t have any negative connotations associated with shorting something. Every trade involves doing so. You get to attack things without someone questioning your couth. After the U.K. referendum the currency got killed on perceived relative value, but that was all right because the FTSE did just fine. You didn’t see the BOE bemoan the lower pound.

 

Of course the other beauty of FX is you can order up an over-the-counter option with whatever bells and whistles are desired. You get the exposure you think you want and your banks are more than happy to accommodate.

 

All of these characteristics, and more, make currencies the perfect vehicle to get involved in issues one may or may not actually know anything about. But it also works the most cleanly for hedgers and real money people as well. You can protect yourself while not having to lose your underlying position. Politics is people and country not just asset prices. And this is FX’s specialty