Markets Need To Realize That Nothing Is Forever

Tyler Durden's picture

Last week, Bloomberg's Richard Breslow debated whether it’s the size or speed of moves that more unsettle markets. It seemed particularly pertinent as investors were struggling to make sense of the dramatic steepening of sovereign yield curves across the globe.

The answer is, it’s always the speed. And when it involves a reversal of direction, the fear factor is multiplied.

Central banks have done their utmost to make the trend your friend. No matter how distasteful or unwarranted the price levels.

By suppressing volatility and enshrining the concept of a risk “put,” modern portfolio theory has been stood on its head. It became not only possible, but advantageous, to explain away tail risk, unless it’s positive. Hedges become an expense to be reduced in search of returns.

For much too long, only bad news has triggered the reaction function. Geo-political risk is something for monetary policy- makers to worry about.

Of course risk in all its forms is under-priced. That’s been the whole idea.

But the market can’t shake the idea that there’s important tail risk from a shift in how Japan deals with its intractable problems. It’s a risk that can’t be defined away. And whether the BOJ consciously or inadvertently changes how the game is to be played.

As central banks lose their mojo, economic cycles rise from the ashes or policy-makers have to change strategy, there will have to be a major re-think of all that’s become rote in investing methodology.

The angst caused by recent curve steepening argues that the seeds of doubt about the status quo may finally be taking root. People want to buy this dip, but there’s been very little insistence that it’s time critical. Or level irrelevant.

For investors, all of this has dramatically raised the stakes for this BOJ meeting.

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GUS100CORRINA's picture

THE END IS NEAR ... I CAN FEEL IT ... THE END IS NEAR ... A FEW WEEKS AT MOST???

A LOT OF MOVING PIECES ... DEMOCRATS LOOK ABSOLUTELY BEWILDERED AND PERPLEXED.

TRUMP/PENCE TICKET IS BREATHING DOWN THEIR NECKS. CRIMINALS WILL BE PUT IN JAIL AND THERE WILL BE JUSTICE.

Consuelo's picture

 

 

And then...

 

You woke up...

SomethingSomethingDarkSide's picture

These are as much "Markets" as Gartman is an "Investment Advisor".  Intentionally falsified, absolute lack of Price Discover, definition of a Facade. 

It would be like telling Kanye to come down to earth - it might work but only in the wildest of LSD driven fantasies.

 

VinceFostersGhost's picture

 

 

I don't think the heavy stuff is going to come down for quite a while!

https://www.youtube.com/watch?v=8A3M-d_eIqo

pathosattrition's picture

Once people pull their head out of the sand, it will be far too late to prepare.

bada boom's picture

I think good number have stucks their heads in concrete.

HRH of Aquitaine's picture

With their ass in the air. Bad position. Very, very bad.

johngaltfla's picture

I'm just hoping to witness the assrape of the century in just under 20 hours or so. It will be HILARIOUS if the BoJ and Fed declare their "independence" from the Political elites and markets.

Hohum's picture

Hope is the longing for a condition over which you have no control.

Creative_Destruct's picture

But according to the Simple-Keynseian Central Bankers, and their academic ilk, perpetual stimulation can forestall natural cyles.

THAT is the archetype of False Hope.

JenkinsLane's picture

Another BoJ squeeky bum time.

Hohum's picture

Sure, but deep green day tomorrow, right?

johngaltfla's picture

It depends on what 1 minute candle you're looking at.

dark pools of soros's picture

we already had the crash.. that was it.. NASDAQ 9000 & Beyond

Yen Cross's picture

  Wasn't there a movie made about this back in the sixties, just before the '70's *caugh *caugh energy crisis?

  Sean Connery starred in it.

Creative_Destruct's picture

"Diamonds are Forever" ... title based on scam advertising from the De Beers cartel.

allamerican's picture

raise rates cause economy is shit, unchanged if economy is shit.  either way, mrkts are shit.

janet, work on your shit resume'.....