Market Believes 'New Normal' Is 'Old Normal' Once Again

Tyler Durden's picture

For the third time since the crisis of confidence in the world's economic and financial markets really shifted from the 'old normal' to a supposed 'new normal' of credit-bloated slow growth and deleveraging, risk markets in general have fallen back to a belief that systemic risk is off the table. Not just European tail-risk. As Bloomberg notes, across six major assets classes, cross-asset-class correlation has fallen to levels associated with pre-crisis risk. Simply put, the systemic 'tail-risk' driver of our markets has been priced out, leaving just idiosyncratic risk (for now). What is often misunderstood, however, is this drastic reduction in correlation also means the market believes that the systemic 'flow' of central bank liquidity is also less important as investors become more confident that some fundamental hope belies the performance. As we have seen a few times post-crisis, since the impossible was proved very possible, risk-flares can happen when one least expects them, and with market perceptions of that possibility now so low, the impact could be considerably more exaggerated.



Simply put, this is a chart of the victory of central bank largesse over human common-sense and logic. We suspect - just as we have seen before - this cloak of invincibility will be lifted once again very soon.


Chart: Bloomberg

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zuuma's picture

My investment pyramid is perfect. A few Lottery tickets on top Small amount of real property. Some gold More silver Lead/copper/Brass combo units. Applicators for said units Some extra food. I'm gonna sit this market out for a while

DoChenRollingBearing's picture

Better late than never...  Stocks, politics, bonds, commodities.....

Review of Barron's -- Dated 25 February 2013

Super Broccoli's picture

NOTHING can lead to a confidence drop, NOTHING, WHATEVER HAPPENS. China could nuke america, wall street will still be running higher !

redpill's picture

If a broken window is good, a nuclear disaster is even better!

tickhound's picture

The almighty PONZI requires such sacrifice.  In turn he providith bountiful harvests, care for the sick, and victory in battle.  From PONZI we grow.

Like the Mayans and the beating human heart sacrifice to bring the rains for crops... The names may have changed but...

SilverMaples's picture

Of course, "they" make sure that these kind of correlation meansures (and volatility) drop in order to lower their regulatory risk numbers that have to be reported by the VaR and stress testing teams. Hence that enables them to take even more risk by increasing leverage on existing positions until once again the system halts after another SHTF event.

ArmyofOne's picture

Buy the dip's bitchez...



ebworthen's picture

2008 all over again, they just need more of Mom and Pop's money.

With each pay period more and more 401K and IRA money gets trapped in the casino.

Those poor responsible sods with a mortgage give more and more to the banks as another housing bubble is blown.

rubearish10's picture

Well, it's cool to at least see some two way action. Man, that XAU/DJIA pair looks attractive, 8+!!!!

lunaticfringe's picture

We no longer have a "free" market. We have this sick, manipulated market where the government is in charge of manipulating the data, the banks are in charge of buying bonds and equities, where the oligarchs are in control.

Republic-Mob rule democracy- and then oligarchy. This is not unprecedented change. This is history repeating itself. 

Shizzmoney's picture

With each pay period more and more 401K and IRA money gets trapped in the casino.

Not me - my money goes to an ACTUAL casino. 

That way, at least when I win money, it actually hits my hands.