Barr’s Irn Bru and Farage’s Secret Recipe

HEDGE FUNDS AND SHORT-SELLING THE ECONOMY

THE London Stock Exchange happily provides an online list – updated daily – of which hedge funds and other financial pirates are busy shorting the shares of which companies. Hedge funds are big supporters of Brexit because betting on the chaos and uncertainty makes them oodles of cash.

For new readers, shorting involves borrowing shares the hedge fund doesn’t actually own (for a small fee) but which it thinks are about to fall in market value. The hedge fund then sells these borrowed shares to buyers willing to pay the current market price. When (if) the share price drops, the hedge fund can re-purchase them but at the new lower cost. It then “returns” the shares it borrowed to start with, pocketing the difference between the old price and the new lower one. Read that again – it sounds complicated, but it makes billionaires of folk who don’t actually contribute anything positive to society.

Looking at today’s short-selling list I see Odey Asset Management is busy shorting Metro Bank, the AA, the Berkley Group (a property company), and Lookers (a car dealership). Odey is the brainchild of Crispin Odey, who has put up a lot of his own cash into backing Boris.

Odey doesn’t always get it right. On September 30 he increased his shorting of Metro Bank, which has been in difficulty recently. But on Wednesday 2 October, Metro’s shares surged by a massive 30 per cent on news the bank had raised £300m in a bond issue. The danger in shorting is that if the price goes up instead of down, hedge funds end up making a whopping loss because they have to buy back the borrowed shares for more than they sold them.

Of course, Crispin Odey is a gambler. The fact that Metro had to borrow £300m at an interest rate of 9.5 per cent suggests it is a sick bank. Odey may be holding on in the hope things go pear-shaped. But nobody can be happy that our banking system is being gambled with in this manner. Anyone who tells you capitalism is a good thing – as Boris did in his Tory Party conference speech – is either deluded or on the take.

NOT MADE OF GIRDERS?

By the way, a glance at the latest LSE list shows that a lot of people are shorting AG Barr, whose share price is soft. The lesson here is not necessarily that Irn Bru is going out of fashion though customers have been complaining about the changed taste of some Barr’s products as a result of the sugar tax. More likely the hedge funds are assuming our bad summer has hit the sales of soft drinks manufacturers and therefore decided to gamble this will depress short-term profits.

Of course, the consequences of bad weather tells you nothing about the real state of a company’s efficiency, management or long-term viability. But then hedge funds don’t care about such matters. They are short-term gamblers and so prepared to drive Barr’s shares down if they can make a fast buck.

The proper conclusion is that short selling should be outlawed. Unfortunately, the SNP’s Growth Commission report proposes that an independent Scotland simply imports the UK’s dysfunctional financial regulatory regime – presumably not to upset those nice people in Charlotte Square. If we are to give Scottish firms a chance, and focus investment and company development for the long-term, we need to stop Boris Johnson’s hedge fund pals from gambling with other folks’ jobs.

HEDGING NIGEL’S BETS

The other commodity that hedge funds short is currency, especially the value of the pound sterling. Arch Brexiteer Crispin Odey made circa £220m in a single day when he bet on the pound slumping on a Leave vote in June 2016. In 2018, he took another punt on the pound nose-diving if Westminster did not back Theresa May’s EU deal.

There is much City gossip about how the hedge funds made money out of the Brexit referendum. On the night before the count was declared, Nigel Farage got on tele and suggested it looked like Remain would just win. However, the hedge funds and the Leave campaign had taken a lot of very detailed opinion polls. The hedgies certainly knew it was going to be a No vote.

So why did Farage suggest otherwise? Maybe he genuinely had a last-minute panic. However, there is a conspiracy theory going about the City that Farage – who used to be a junk bond salesman – knew what he was doing. People in the foreign exchange business believe that there were hedge fund traders engaged in a complicated operation known as a “knock-in short” against the pound. Basically, this means betting the pound will go up then down. Which is what happened after our Nidel got on the box and seemed to admit defeat.

Farage has responded by telling the financial media that any such suggestion is “a crackpot lunatic conspiracy theory.”

Well Nigel and his Brexiteers know a lot about conspiracy theories.

Comments (7)

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  1. john burrows says:

    Why is a UK political party deciding how an independent Scotland will be governed?

    People vote for the SNP to gain independence. Not to have their futures be determined by the SNP, although to be fair, while we are still a part of the UK, they have done a damn sight better job than any of the other parties the UK has offered up over the past 300 years. But, independence is no more in the gift of Nicola Sturgeon than it is by Alexander Johnson, or Jeremy Corbyn. Independence is entirely in the gift of the Scot’s themselves.

    The failure of the 2014 referendum, in large part, was due to the SNP leadership’s failure to understand this, wandering off script into their own sun lit uplands, providing a feast to those opposed to independence. Including ridiculous hyperbole about generational nonsense. The Growth Commission is an entirely internal policy statement by the SNP. It demonstrated for all to see the cognitive dissonance, shared by the whole leadership, that the SNP is the state and the state is the SNP. They should wake up and smell the coffee.

    The hubris of taking it upon themselves to pre determine how Scotland will be governed is getting on my nerves. It is not their decision to make, except by the consent of the Scot’s, whenever we are afforded the opportunity to make that decision. Which will only happen after we gain independence. This cart before the horse nonsense is a deliberate strategy of the UK Government to make Scot’s justify their self determination to a government we wish to remove. It is a logical absurdity. Why can’t the leadership of the SNP see this???

    As a member, my deep conviction is the SNP should just shut up about how we will govern ourselves, and force the UK government to justify why we should accept that they still should. Because, as is glaringly obvious to anyone with half a brain, the current UK Government couldn’t organize a piss-up in a brewery, and won’t be for the foreseeable future.

    1. Jo says:

      John
      Oh I wouldn’t complain about our future any more. From what I can tell after yesterday’s announcements, Stormont will be ruling the whole UK soon, including Scotland!

  2. Derek Henry says:

    Clutching at straws a bit here George.

    I trade Forex and made a right few quid buying the £ after the Brexit vote when all the gold standard, fixed exchange rate mob was selling it.

    Why ?

    Because all of the ex Goldman Sachs central bankers lie about how interest rates actually work. Once you actually study the government accounts and how the commercial banks work ( loans create deposits) and not the loanable funds model that they say how it works. Then use the Minsky\ Godley approach studying the sectoral balances it is not difficult to trade currencies. Especially, because Carney and Drahgi and Powell send the herd the wrong way.

    Believe me Farage is clueless about this as most bankers are. They use models that day

    A) We are still on the gold standard.

    B) We still use fixed exchange rates.

    Warren Mosler and Bill Mitchell just in case you have not noticed are in Chicago one day New York the next quickly followed by a trip to Frankfurt after stopping in London. MMT economists are teaching these bankers how it really works since we left fixed exchange rates and the gold standard. It is quite simply beyond belief that you have not noticed this George.

    You are giving Farage way too much credit he is utterly clueless on how the government accounts actually work in reality. I know because I have studied them for nearly a decade and after talking with a few right wingers they simply have no idea how it works.

    So why was I buying the £ when everyone else was selling George ? Why did I buy gold at 1070 per ounce when everyone was selling gold and look at the price of gold today ?

    Simple – I fully understand MMT. I explained at great length to your friends in the Common Weal what is REALLY happening when the FED started increasing interest rates. That is the opposite of what you believe George and Farage and what your TV set tells you.

    It is time you learned it George if you are going to be advising the SNP. The SNP have no idea either especially the ex bankers in the SNP that put together the growth commission.

    Warren Mosler in 2017 explaining it

    https://www.huffpost.com/entry/there-is-no-right-time-fo_b_5995896

    And a couple of videos which will also help you understand what is REALLY happening.

    Warren Mosler at the MMT international conference interest and inflation.

    https://m.youtube.com/watch?v=ANOiB8GRvfA

    Mike Norman explaining interest rates and exchange rates

    https://m.youtube.com/watch?v=DH0qNnswzJc

    Very simple stuff George when the central bank increases the cost of borrowing by increasing interest rates. Business does not take that increased cost of borrowing on the chin. They pass it into their consumers. Iron Bru for example might put a penny on the price of their canned drinks.

    Therefore, increasing interest rates is inflationary. It does not fight inflation it causes it so when the FED started hiking 7 times and increased the cost of borrowing 7 times business passed it on.

    The £ was always going to go higher against the $ because inflation weakens a currency the $ is weaker today than it was when the FED first started hiking George.

    Real data destroys the mainstream theory as per usual as mainstream theory is built on false beliefs and MMT gets it right.

    Then you have the interest income channels. The larger the debt to GDP ratio the bigger the effect. When you increase interest rates that is free money, welfare for people who already hold savings. Why they get QE wrong.

    QE swapped an interesting bearing asset for a reserve balance. They stripped billions of interest income out of the economy and get they call it a fiscal stimulas. It is madness QE is not a stimulus it is deflationary. Once again forget the mainstream theory and look at the real data George. Both Japan and the EU have and still are suffering from deflation. Well I wonder why with their QE and negative interest rates.

    Cutting interest rates fights inflation not increasing them.

    This explains what Drahgi has been doing he should be sent to the Hague and put in trial for crimes against humanity.

    https://underground.net/warren-mosler-interview-about-money-the-euro-and-greece-dialogos-radio/

    I find it fascinating George that you give Farage and his friends way too much credit here. Especially, when you do not understand how it works yourself. At least the Common wealers now get it after I told them how it works. That is one silver lining I suppose.

    Lying by the sea in Cyprus I finished the book Why Minsky matters by professor Randall Wray yesterday. I suggest you read it George from cover to cover so that you can keep up to speed of what is happening all around you. An excellent book if you are interested in economics. Especially fiscal and monetary policies.

    1. Me Bungo Pony says:

      MMT sounds great …. until you read something that appears to blow it out the water. Trying to make money out of economic forecasting is basically just gambling and, like all inveterate gamblers, those who indulge have their own “system”. While they work they are promoted as the only way to go …. until they don’t. Mr Henry rails against the “system” used by Hedge Funds because his “system” has worked for him …. but then the Hedge Funds have made £billions using their “system”, so surely it works too …. except when it doesn’t. Like I said, it is all just gambling. Whether you use MMT, shorting or whatever, you are just gambling. It’s great when you are “winning”; not so great when you are “losing”.

      On Mr Kerevan’s article, shorting should be illegal. Surely the selling of shares you have only “borrowed” is theft. If you borrowed your neighbour’s lawnmower then sold it you’d be guilty of it; why not with “physical assets” like shares (you need a certificate to prove ownership after all)? I would say it would be next to impossible to stop shorting on currency though. Could it ever be enforced? You can’t prove which £, € or $ came from the lender and which came from the gamblers own funds.

      1. Derek Henry says:

        Less of the Mr Henry I am a working class populist who moved to Glasgow from the borders with £65 in my pocket. Del or Dessie is what everyonee else calls me.

        We know which is why MMT says you should ban it and go much much further and nationalise the banks and do not issue government debt at all. Infact, we are the only group who says you should ban it and means it.

        http://bilbo.economicoutlook.net/blog/?p=37059

        So before you try and crtique MMT you should read the paradigm as it sounds as if you have no idea what MMT is. Left wing reaminers who are obviousley on the wrong side of the arguement or even worse liberals what have they voted for ?

        This is the idea that the EU will deny the UK access to the precious “Single Market” and just won’t buy our stuff any more.

        Unfortunately that falls foul of the logic of the Single Market in the first place.

        The whole concept is based around the idea of Comparative Advantage — the neoliberal belief that each nation can ‘specialise’ in some set of goods or services and that somehow enhances the return to each nation. Of course if you specialise, then you don’t generalise, and that means that if the UK leaves the EU the only place to get the ‘secret sauce’ that they currently buy from the UK is … the UK. That is if you believe in Comparative Advantage.

        However if you say that you can get the UK’s ‘secret sauce’ from elsewhere in Europe then you are effectively saying Comparative Advantage is bunkum (which it is), and, therefore, there is no benefit at all to a Single Market and the free trade concept in general.

        So when the UK leaves the EU either the Single Market theory is true in which case the EU has to buy stuff from us, or it is false and we don’t need really need the Single Market at all. Instead we can shift to a domestic focus and implement a Job Guarantee

        To sum up, comparative advantage is invalid, inapplicable, and irrelevant in the real world of trade imbalances; global movement of capital, technology, research, and management skills; worker specialisation; persistent large-scale unemployment; huge wage-level gaps between countries; “sticky” prices, wages, and currency rates; technological progress; “learning curves”; production overcapacity; geopolitical and economic instability; and unprecedented uncertainty. This list of forbidden by the theory but unavoidable conditions of the 21st century can be prolonged further. Along with predatory trading and currency manipulation.

        Among the best sayings of George Orwell, “There are some things only intellectuals are crazy enough to believe” takes a place of honor. Comparative advantage is one of these things.

        https://www.huffpost.com/entry/the-myth-of-comparative-a_b_581814?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAADGZs6b1OhDctlnq8zzpvmNGQ7zVF3Jlj9Lb9bUf7xlEDA-SsKoTLl1v3SUC6bWe0AmsBca5s51PpUGAglXJN61tjOLfiDAWa7iJt70XNOWyQceYGoBldVpJ9-FNPNwY1f5yDLmc4tKGckiBGjIu_P7hN-lcwuL8oCQwXRWrwOds

        Today’s “free trade” is not only the last remnant of laissez-faire — it is its least deserving remnant, full of wholesale foul play, deception, currency manipulation, predatory techniques, and other violations of its rules, with the perps not even trying to conceal those violations. To call the existing international trade “free,” and to use comparative advantage to justify it, is the top of unscrupulous audacity. I do not understand how people of integrity can do it and then call themselves “scientists.”

        Yet, George and left wing remainers who vote for neoliberalism at every turn don’t understand how interest rates ( monetary policy) works in reality. You’ve heard Nicola Sturgeon and all the other fools when they talk about the single market. They are clueless the single market rules have all the nasty bits of neoliberalism in it.

        I don’t rally against the system. MMT describes how it works in reality and shows clearly how the neoliberals have imposed gold standard, fixed exchange rate rules that no longer apply to our monetary system. If you set a stall up at Stranthbungo in the lanes and asked these questions

        a) Do taxes fund government spending ?

        b) Is government borrowing fiscal policy or monetary policy ?

        c) Does government finances operate like a household budget ?

        d) Is a government budget deficit bad ?

        e) Is a trade surplus good ?

        98% of people who attended Strathbungo in the lanes would get all of these wrong. Their TV’s have turned their brains to mush.

        What is held out as a financial constraint is usually not that at all. Typically, in macroeconomic policy the constraints are political and voluntarily imposed. The sophists then dress these political constraints up as financial constraints using gold standard type macroeconomic models which appear throughout the literature to avoid addressing the real issue.

        Our assessment is that if the general populace was better educated in these matters – that is, understood the actual operational capabilities of the national government it would be very difficult for the politicians to conflate their own ideological desires with the concept of a financial constraint. In that context, telling us that we had to have 5 or 8 per cent unemployment and rising underemployment because the government cannot afford to purchase all the labour and even if it did it would be inflationary, takes on a different slant.

        We would know that they could afford to fully employ the available workforce as long as their were sufficient real resources available to provide the extra food and other things the higher employment levels would invoke. This would then require a higher level of sophistication in the public debate. Are there the extra resources? How close to real capacity are we? That would then promote new research that focused on the nub of the problem rather than the array of dishonesty that parades as knowledge out there in the form of academic papers – which say the government has a financial constraint and will cause higher interest rates, higher taxes, higher inflation if it bucks against it.

        Businesses would also have to justify their opposition to true full employment in more sophisticated ways because we would all know that the usual reasons they give – again relating to government budget constraints – are all deeply flawed.

        I want 98% of people walking around strathbungo in the lanes to get the answers to those questions right and that must be a good thing surely ?

        Finally, all of the money I made from trading the £ was used to set up MMT Scotland to help educate the people of Scotland how the government accounts actually work in reality. I didn’t buy up business and then sell it off to the highest bidder and leave thousands unemployed. I put the money to a good old progressive use. The money i make from trading gold will go to another good cause. A good left wing cause not a neoliberal globalist one.

  3. Derek Henry says:

    By the way after a no deal brexit the £ is a buy. Only gold standard, fixed exchange rate fools who keep shorting it like to lose their money.

    After the brexit vote I bought the £ from 1.3 all the way down to 1.2

    It went back above 1.4 in no time because the FED was in rate hike mode weakening the $ every time.

    Buy the £ after brexit we now use flexible exchange rates and it will adjust higher let it settle buy the £ and treat yourself to a wee holiday with the profits.

    Free from the neoliberal globalist EU and a free holiday. What more could you want apart from Indy free from the neoliberal EU.

    https://m.youtube.com/watch?v=Y3Fdoft4yBI

  4. Derek Henry says:

    One of the most enduring clichés is the following: “Paul Volcker broke the back of inflation.” Whoever came up with this is a marketing genius because people are still walking around today, 36 years later, repeating this ridiculous lie.

    What is crazy is that even today the idiots still believe interest rates fights inflation

    https://realmoney.thestreet.com/articles/10/19/2016/hey-volcker-thanks-nuthin

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