RORO: Risk on, risk off

Assets are moving in lockstep with each other, which is making life very hard for traders indeed.

The phenomenon of RORO – risk on, risk off – is nicely illustrated in two graphs from HSBC, via alphaville:

What you are seeing is two maps of correlations between various assets, in 2005 and 2012. Dark red means the two assets are strongly positively correlated, dark blue means they are strongly negatively correlated, and turquoise, green and yellow means no real correlation either way.

In 2005, most assets were roughly uncorrelated. Some, like the NASDAQ, S&P500 and Dow Jones, moved in tandem, as did the four key European markets, and the key sovereign and investment-grade bonds. But for the most part, different assets gained and lost value in an uncorrelated manner.

Come 2012, and everything changed. In the top left are all the assets which get stronger in the good times – mostly indexes like the FTSE, but also a few currencies and copper. In the bottom right, there are the assets used to hedge bets when times are rough: the sovereign bonds, the Yen, and right down at the bottom, the US Dollar.

The former class are the risk-on assets; those investors buy when they want to take on risk to make money. The latter are the risk-off assets; those which they buy to get themselves some stability.

The simplified reason for the change is the bimodal nature of responses to crises. When things go wrong, one of two things happen: Governments step in and save the day, or they don't. Quantitative easing is one example of this, but so are bank bailouts, expansions of the "firewall", and so on. If they happen, every risk-on asset rises; if they don't, everything falls.

For those interested, a deeper examination of what RORO means for markets is given by Bryce Elder over at the FT, but the overall problem with the phenomenon is that it reduces trading to a bet on up or down. As a result, traders hate it. As Elder writes, instead of being able to do their job well, by focusing on the fundamentals of each asset they buy (asking questions like "is copper going to be in demand because of growing infrastructure demands"), "each day’s profit or loss is determined to a large degree by results of a sovereign bond auction or comments by a central banker".

Until the crisis is over, though, RORO is sticking around, so investors had better learn to live with it.

Risk on: A trader at the New York Stock Exchange. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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On the important issues, Louise Casey all too often has little to say

Far from moving the debate on, this new report on integration adds little to the report I commissioned in 2001. 

For 15 years, “numerous government reports on community cohesion and integration have not been implemented with enough force or consistency” concludes Louise Casey’s review of  integration.  The government’s lukewarm response suggests their effort will be as “diluted and muddled” as all the rest.

There’s a deeper reason why governments shy away from the measures that are needed. The report's wealth of data sets out a stark if sometimes contestable picture of a divided society.  But no amount of data can really bring the lives of our fellow citizens to life. As the Brexit vote underlined, this is now a nation divided by class, geography, education, wealth, opportunity and race. Those divisions colour the way we live our lives, the way we see problems in society, the relations we have with others, and our political choices. The report, like many before it, stops short of setting out that reality. It’s easier to pretend that most of us pretty much agree on most things; but just few people don’t agree and they must be the problem. Predictably, much of the early coverage has focussed on the Muslim community and new migrants. If only it were so easy.

According to Casey “in this country, we take poverty, social exclusion, social justice and social mobility seriously” and we do it “across political divides”. Apparently “creating a fair, just society where everyone can prosper and get on” is a cornerstone of British values. Yet for page after page the report chronicles the serial failure of this benign consensus to tackle educational under-performance, and economic and racial disadvantage. If we all agree, how come we haven't done anything about it?

These problems are not certainly easy to solve, but more lip service is paid to tackling them than effort. The practical material issues documented here need addressing, but punches are pulled when hard answers are needed. Given the dramatic impact of mass migration on cohesion, is integration possible while current rates of immigration persist? Can we find the political will to tackle poverty and disadvantage when those who might benefit from the effort are divided against each other by suspicion, race, geography and values? After all, rather than progressive policies producing a cohesive society, social unity is the precondition for the introduction of progressive policies.

We don't actually actually agree on what our “fundamental values” mean in practice. We can all sign up to democracy and the rule of law, but as soon as those are put into practice – see the court case on Article 50 – we are divided. When judges are popularly seen as “enemies of the people” and a vote in an elected parliament as a threat to democracy, in what sense are law and democracy fundamental?

Casey usefully highlights how treating homeless families equally, irrespective of ethnicity and length of residence can create the perception that minorities are being favoured over long standing residents. Our differing views on what is “just” and how “fairness” are defined can tear us apart. Is it fair to favour the newcomer over the indigenous? Is it just to put length of time on the waiting list above housing need? We often don't even acknowledge the legitimacy of other points of view, let alone try to find common ground.

The continual invocation of Britain and British values lends an air of unreality to the report.  Most people in England include British in their identity, but Englishness and English interests are of growing importance. In a worrying development, some areas of England  may be polarising between a white Englishness and an ethnic minority Britishness. Integration won't happen without a shared national story that combines a unifying national identity with the acceptance that we all have more than one identity that matters to us. Ignoring the reality of complex and multiple identities closes off one essential way forward.

None of this means that the criticism of some reactionary and occasionally dangerous ideas and practices in the Muslim community should be ignored and not confronted. But in a country where the established church opposes homosexual relationships and praise for Vladimir Putin's Russia is now mainstream politics it is hard to believe that all our problems can be reduced to the behaviour of a minority of a minority community.

John Denham was a Labour MP from 1992 to 2015, and a Secretary of State 2007 to 2010. He is Director of the Centre for English Identity and Politics at Winchester University