In his latest "Twilight Zone" comment piece, BofA's Michael Hartnett notes that YTD global asset returns, paltry as they are, are as follows: US dollar 7.3%, stocks 2.0%, cash flat, fixed income -3.0%, commodities -3.8%, and are summarized in the table below:
[6]
But most curious was the following:
These mediocre asset returns disguise treacherous trading conditions in past six months. Indeed, Wall Street has been a world of Pain Trades ever since the Fed signaled the end of QE early last year (Table 2). The end of Max Liquidity means the end of Minimum Volatility, and the lack of strong economic growth in recent quarters has caused the cyclical upside to asset prices to fade.
[7]
Which is why when the Fed's members say:
- BRAINARD: FED WATCHING DEVELOPMENTS IN GREECE, CHINA CLOSELY
What they mean is they are watching both the 200DMA and any surges in cross-asset vol, which in the aftermath of China, and Greece, has been surging, and what's worse, cross-asset correaltion is soaring and rapidly on its way to 1.000.
Which is why those more cynical inclined have been asking: since the only reason the Fed is hiking rates is to have an "economic" alibi to justify QE4, so as to remove the "world of Pain Trades" for its shareholders, namely Wall Street, is the recent dramatic surge in volatility in Europe, and near crash conditions in China enough for the Fed to completely put away the "rate hike" facade, and permissive enough to launch QE.
The answer: probably not yet. Keep a close eye on appearances and statements by Bullard: if and when the time comes, and the S&P is about to enter correction, he will warn the market just when the next round of quantiative easing is around the corner.
