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This week's Monday thread is on the effect of the end of the 5x / 10x IPD promo. This has been a remarkable promotion for more reasons than were foreseeable when it was announced and has had wider reaching consequences for the market. But what happens next?
Firstly, it's worth reflecting how much @FootballIndex must have paid out in additional dividends over the past two months. Last weekend alone the payout topped £700k, so we can be sure that the final bill will run into the high millions.
A number of traders seem to have created a new sub-market with their expertise in this space, restructuring their portfolios and optimising their trading behaviour to maximise personal income from this opportunity. Well done to anyone who has profited from this new approach!
This new market dynamic has definitely created a number of short term trends which aren't necessarily helpful for Football Index. This is a product which has always tried to accentuate the longer term nature of its bets, which isn't consistent with the effects of this promotion.
Whilst volatility is generally regarded as positive for market traders, the combination of moving money into short term holds and the introduction of order books has contributed to a fragile level of trader confidence.
It looks as if money has flowed out of longer term PB / MB holds to fund this IPD chasing activity. For some traders, seeing AAA rated holds lose value will have only contributed further to this nervousness. Does this now come to an end however?
Whether you are pleased to see the end of the promo, the inflationary effect on the market should be helpful in the long run. The flow of cash from FI dividend reserves into trader balances is a nice piece of good old fashioned market stimulus. That cash now needs to be spent.
Furthermore, the introduction of the NBB announced on Friday evening will reward traders for investing this cash rather than leaving it in balances. If acting rationally, we should expect to see clear market growth until 31/10.
The question is, where do we see the effects of this growth? Instinct suggests a natural rise in the value of proven PB scorers. As @Sporting_Panda pointed out on last week's @FiGuide Extra, the 100% rise in core dividends seems to have been forgotten.
Don't expect a sudden plethora of rockets across the board however. The revised sell order mechanic continues to mean money is trapped in non-yielding assets. This will take time to unwind in a controlled manner. Further, the season is young and new PB holds are emerging.
In summary, we should the see the broader market now start to shift into something more value orientated with long term sustainability. I would advise patience however and the need for discipline to allow trading behaviour to catch up with this new dynamic.
