One Trader’s Dire Warning For Markets: “There’s No Way To Know Where This Will Lead”
by Tyler Durden
ZeroHedge.com
02/16/2016
We’re nearly two months into the new year and one of the defining themes for markets thus far has been the extent to which investors have seemingly woken up to the fact that central bankers are not, in fact, omnipotent.
That rather unpleasant revelation has in turn caused some to reconsider the wisdom of the policies that drove stocks to nosebleed levels off the 2009 lows. That is, if it’s now clear that ZIRP, NIRP, and QE have failed when it comes to stimulating global demand and trade and reinvigorating the inflationary impulse, one is left to wonder what happens when the world careens back into recession against a backdrop of extreme capital misallocation and exhausted counter-cyclical policy maneuverability.
What happens, for instance, if stocks begin to crash and authorities are powerless to arrest the slide because rates have hit the lower bound and there are no more monetizable bonds? Do all DM central banks simply go “full-Kuroda”/ “full-Chinese national team” and provide daily plunge protection? Which brings up another point: the BoJ, the SNB, and Norway’s $830 billion SWF are big holders of equities. What happens when the value of those stakes plunges?
Here to ponder those questions and more is Bloomberg’s Richard Breslow.
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From Richard Breslow
“Moral hazard” has become a hackneyed phrase when warning about asset prices, investor behavior and quantitative easing. In fact, money managers have been merely doing the bidding of policy makers. Doing God’s work and making a buck, too. Now that seems like a plan. The lack of downside risk, which has perverted the normal functioning of markets, has been a vital element of the wealth effect strategy.
If putting risk back into risk management were the only challenge for policy normalization it would be hard enough. It takes only days or weeks to form a habit: they’ve had us hooked on the juice for seven years. But there is a much more systemic problem our leaders have created. Sovereign wealth funds have taken to plowing the people’s money into those same assets.
The Rest…HERE
