Chris Macintosh Blog | Risk Happens Fast | Talkmarkets
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Baptized into the world of business and travel at a young age I’ve subsequently lived in multiple countries, traveled to many more and built myself a small fortune investing in businesses and markets that I spend an extraordinary amount of time doing due diligence on.

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Risk Happens Fast

Date: Tuesday, November 1, 2016 8:43 PM EDT

 

As a teenager brimming with testosterone my reptilian brain loved action movies.

Top of my list were Steven Seagal movies. Clearly it wasn’t for his acting skills, which are only marginally better than Barney the dinosaur.

What I loved about Seagal was that he was both deadly and terribly fast. His opponents had mere seconds before their arms, legs, or other bones were snapped like twigs. Or they suffered a severe beating leaving them either dead or in a bludgeoned unrecognisable mess. Fabulous stuff!

With Seagal risk happened fast. The targets of his aggression never had time to get out once the onslaught began, and then it was all over in seconds. None of this drawn out biff-baff nonsense, taking forever to finally get to where you knew things were headed anyways.

Back in January of 2015 the currency markets had a “Seagal moment”.

The Swiss National Bank (SNB) had pegged the Swiss Franc to the Euro at 1.20 and by the end of 2014 had already spent billions defending the peg.

All the numbers told us the peg was untenable. We didn’t know how long the peg would hold but we did know that with every passing day what was clearly untenable simply became more untenable. The stress was building.

Failing to participate is one of my regrets. I saw the imbalance, the fact that volatility was unbelievably cheap presenting awesome asymmetry, and instead made another cup of coffee thinking, I’ll get an entry sign. Something that allows me to identify timing. Dumber than thinking you can get out of Seagal’s way after disrespecting his mama.

Back in March of 2015 we explained why the probability of the Chinese renminbi being devalued was high and increasing daily. Five months later the PBOC shocked markets by devaluing the yuan. Here is what we said at the time when discussing the CHF:

“By pegging the CHF to the euro at 1.20 the SNB put a lid on how much it would appreciate against the euro. In doing so the SNB’s balance sheet grew faster than even the US Federal Reserve’s balance sheet, and finally in January the SNB realized it was fighting a losing battle and threw the towel in. This resulted in an “off the Richter scale” move (+30%) in a few minutes! This disorderly revaluation shook the currency markets and impaired a number of financial institutions!

In trying to suppress volatility and create more certainty all the SNB euro pegging efforts succeeded in doing was to achieve the exact opposite!”

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