The biggest problem for individuals, and the culprit of the great “ETF buying panic,” is the “herding effect” as investors rush to chase market returns. The coming problem will be “loss aversion,”as the herding effect runs in reverse in the rush to get out.
The key economic releases this week are the durable goods report on Thursday and Q1 GDP on Friday. It iweek is the busiest week of earnings season, with 40% of S&P 500 equity cap reporting. In addition, there are a few scheduled speaking engagements by Fed officials this week.
One should not assume that anyone is actively striving for a crash. But, in view of the negotiations – set to begin in 2018 – on a European fiscal union (implying systematic transfers from the EU’s north to its south), it wouldn’t hurt if Germany and the Netherlands knew what would happen if they did not sign a possible treaty.
Most of the results are in, and while it remains close, Macron will likely be the winner of the first French presidential round and is set to face Marine Le Pen in the second round. What does that mean for various asset markets and the bigger macro picture? Here are two forecasts, just released from Goldman and Citi.
"You are not an investor. One can only be an investor in functioning markets. There have been no functioning markets since at least 2008, and probably much longer. That’s when central banks started purchasing financial assets, for real, which means that is also the point when price discovery died. And without price discovery no market can function."
"The central bank is ready for any shocks that should materialize [after the French election]... Intervening very quickly is really very easy now given the instruments we have... But as we have seen in similar cases, no need has really been observed. And the reason is that all market participants know that these instruments are there to be used."
"A year ago it was easy to be bearish. China was slowing, world trade was creaking, Europe was not recovering and the oil price was hitting new lows. A year later to be bearish feels lonely... When we look back at this madness, some people will feel ashamed. Twisted facts and twisted logic may be met in the quiet of the night by reality. "
Fed president Rosengren warned that structural changes in the economy "may necessitate more frequent use of large-scale asset purchases during recessions" and said it is "quite likely" that the use of central bank balance sheets will be necessary in future economic downturns.
"The current run of active manager underperformance began shortly after the onset of QE. Equity market dispersion and volatility have remained stubbornly low throughout QE and served as headwinds for manager performance." - Goldman
In order to establish stability and turn Venezuela’s economy around, runaway inflation must be stopped in its tracks. After all, stability might not be everything, but everything is nothing without stability.