Trader: “If You Ever Needed Proof That Markets Have Disengaged From The Real World, Here It Is”

Thursday, October 25, 2018
By Paul Martin

By Richard Breslow
Thu, 10/25/2018

Forgive me for being mystified, but I find the juxtaposition of headlines that list the number of pipe bombs sent to prominent citizens with claims that the equity market looks oversold and is due for a bounce unsettling and distasteful. The authorities warn that more such devices may be out there, yet global markets are beginning to bounce in Europe and the U.S. as risk sentiment improves.

And yet, traders remain confused as to why risk hedges haven’t been responding proportionately to a 9 percent sell-off in the S&P 500. If you ever needed more proof that financial markets have become disengaged from the real world, let alone the economy, here it is.

Equity markets may have to come to terms with no longer being the sacred asset class around which the entire monetary policy framework revolves. I just don’t see a single central bank changing their plans based on recent price action. Stock traders undoubtedly feel like the character Bart when facing a hostile crowd in Blazing Saddles and Reverend Johnson says, “Son, you’re on your own.” Of course, if the analogy is apt, shares will eventually see new highs. Famous last words, I realize.

Whether it was the Bank of Canada’s overtly hawkish comments when they raised rates yesterday or Norges Bank’s hawkish hold today, they are showing what they see as the way forward. The BOC was even so bold as to remove the word “gradual” from their statement. And ECB President Mario Draghi, while acknowledging the recent economic slowdown and the challenges raised by Italy, was not willing to concede any changes to well-telegraphed policies.

The Rest…HERE

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