Are Markets Coming To Terms With The Notion Of The Punch-Bowl Running Dry?
by Tyler Durden
ZeroHedge.com
Mon, 02/05/2018
After a number of years of increasingly compressed volatility and an endless supply of greater fools willing to buy any asset price dip and sell any asset vol spike, something changed last week. However, as former fund manager Richard Breslow notes, while assets are on the move, there’s no need to be scared… yet.
Via Bloomberg,
One thing I’m pretty sure we shouldn’t be doing is taking the recent market moves and trying to compare the relative attractiveness of various assets based on some recalculated dividend yield.
We didn’t get here following classical value-investing techniques nor will the path out follow such a comforting script.
For too many years, we’ve had central banks relentlessly providing front-running opportunities for investors. Just about the easiest environment, in theory, in which to make money. Yet a shocking number of funds grossly underperformed. You either got risk-parity or you didn’t. And leverage wasn’t meant to be used to turbo-charge your best ideas but to double down on the good faith and easy credit of monetary authorities.
The market is only at the earliest stages of coming to terms with the notion of the punch-bowl running dry. That’s why watching the reaction, both official and institutional, to these minuscule corrections to long-standing trends will be an important guide going forward. So far the Fed is sticking with their script and traders are scared they mean it. The BOJ is pushing back on market surmise that less accommodation is coming and being met with skepticism. The ECB seems deeply conflicted and everyone seems happy with that. But the build-up to today’s speech by President Mario Draghi felt like we were waiting for a post- Governing Council press conference. No one is quite sure what the PBOC is up to, but if financial stability is assumed to be high up on their wish list, they will get increased allocations over time.
It’s fair to say that many of the moves we’ve recently been seeing are grounded on nascent global economic optimism given pretty much universally improving numbers. So it’s somewhat ironic that market participants are spending as much time as they are speculating on when they will end rather than on how to reposition themselves for a potential long-term change in the investing environment. This explains why the path to normalization can’t be as painless as we are constantly promised. And why, secretly, investors think somewhere down below the CB puts will always exist.
The Rest…HERE
