We Have Officially Run Out Of Greater Fools
"2015 was unsually poor."
That's how Citi's iconic credit strategist Matt King begins his latest report, starting with a chart we have shown previously, namely that total returns across most asset classes in 2015 were downright miserable - "near zero or worse" - and that as a result the active manager comunity was humiliated to a degree not seen since 2008, especially in the high yield space, where as we know, several liquidating mutual and hedge funds were forced to gate over the past month.
Which brings us to the question every hedge funder, and especially their investors, have been asking themselves: "why did active managers struggle so much."
King's answer is twofold: on one hand contrarian strategies did not work, while on the other momentum strategies were often stopped out.
King asks: were managers "just unlucky, or is this a sign of something bigger."
His answer is emphatically the latter, and when looking at market dynamics of both position and flow-driven markets he notes that while "greater fool" investing has dominated for a while...
... now that the series of bubbles blown by central banks one asset at a time, is popping and the result is a scramble for cash...
... the investing world finds itself in a dire predicament: we may have run out of "greater fools."
Which is terrible news for the greatest of fools: central banks themselves. King's summary? we are close to a paradigm shift because central banks couldn't even push up inflation breakevens, never mind markets.
The conclusion: "central banks grip seems to be fading."
Which means investors now find themsleves in a world without "greater fools", and in which the central planners' iron grip on markets, is fading.
Is there any wonder panic has returned to a "market" in which fundamental investing, long forgotten, suddenly matters once more and as we have been showing over the past 7 years - undeterred by the great Copperfieldian act put on by central banks since 2008 - the fundamentals of both the economy and the market have never been worse?
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pork and beans
When the French Aristocracy was on its last legs and a buffoon like Louis XVI was king of all he beheld, married to that Habsburg princess, Marie Antoinette, daughter of Empress Marie Therese; the most frivolous queen who only believed in i-phones and whatsupp chatting in her Trianon Palace eating cake, a huge conspiracy was hatched which involved the most hilariously incredible and unscupulous "greed is good" bunch of thieves who scammed the greatest bunch of gullible fools on Earth; all scions of the King's court.
It was called the Queen's necklace scam and involved the greatest array of diamonds ever seen. A scam that took advantage of the delusioned beyond belief State of "doing what it takes" to keep an indebted Empire afloat that reigned in Versailles -- DC/WS of that age.
It set into motion a chain reaction which in five to seven years brought down the French Empire and divine rights kingdom of a thousand year old order, in one fell swish of the guillotine.
The Queen's necklace... today the commodities of Cathay.
They even had a smooth talking Free-mason, scion of obscurantist superstitions disguised into role of king of logical wisdom, Cagliostro, to play as lead "buy the fucking dip" shill of their age !
History repeats!
Come to Melbourne Australia and buy residential real estate.....
But first get in line and get to the back of the greater fool queue......
We are far from running out of greater fools. they are called: Hillary supporters.
We really need a great, BIG emf blast in NY city and outlying areas where the some of the poorer, non-co-located HFTs live. This might get us back to open outcry market-making and you know, a market where fundamentals count again.
An old man can dream...