Monday, January 16, 2017 | 0 comments »

“It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges. That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the fact that to the average Englishman Throgmorton Street is, compared with Wall Street to the average American, inaccessible and very expensive”
Times change and when JM Keynes wrote that in The General Theory of Employment, Interest and Money he did not anticipate the rise of bookmakers like William Hill, Ladbrokes, BetFair/Paddy Power and so forth.

Combined with the power of the internet and idiot-proof betting and trading algos (which is not a comment on the effectiveness of those same algos) the behaviour of the share prices of these companies came to bear an uncanny resemblance to that of the London Stock Exchange (LSE).

Here, for example, is a plot of the William Hill (in red) vs LSE share price between April 2009 and July 2013:

lse wmh apr 2009 to jul 2013

Very positive correlation. It brings to mind the the more famous casino quote from chapter 12 of The General Theory:

“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done”
What, then, to make of the same graphic (with LSE now in red) since August 2013?

lse wmh jul 2013 to jan 2017

Now they show negative correlation. All clear sailing ahead?

It is perhaps a sector comment (for this is not limited to William Hill) and nothing more. But given that the DNA of the modern bookmaker is now part-bourse (they take financial wagers in addition to bets on just about anything else) it gives pause for thought on the possible future direction of the broader market.

After all, central bank actions have not bestowed the same benefits on the clients of bookmakers that they have on those of stock markets.

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