One Trader Fears The End Of The "Heads I Win, Tails I Win" Market As Central Bank Credibility Crashes

We're all experts in identifying the problems (and who is to blame), but thanks to the endless intervention of central banks, former fund manager Richard Breslow warns we've given up looking for solutions. Why bother looking for solutions when there's always some 'greater power' waiting to save the day

Via Bloomberg,

We all seem to be caught up in an endless loop of declaring we’re unhappy because there are so many other people ruining everything. But when asked what should we do, the decision loop points us back to "this stinks" rather than, "well if it were up to me". Identifying complaints, we’re expert at. Coming up with solutions, not so much.

With some legitimate justification from experience, who wants to any longer be in the group making sacrifices when we know there’s always a bunch of other folks gaming the system in a “heads I win, tails I win” scenario. Make it pain-free, or go away.


It’s one thing if these discussions, or lack thereof, concern pizza versus burgers. It’s another if it’s about how we run the economy, or the country as a whole, for that matter. Gridlock or decision-making paralysis only works when things are basically fine anyway.


But at some point the powers that be need to understand that motion is progress, even if you allow for the possibility of missteps. This is something the Fed really needs to contemplate before heading into the Committee Room. The economy overall just isn’t in a crisis condition. But there are plenty of threats exacerbated by the old medicine.


You really have to wonder what possible benefit waiting another couple of months to timidly introduce a time line for balance sheet reduction or even execute another rate hike will achieve? It’s almost as if we are stuck in neutral because they don’t want to harm the excitement of Jackson Hole. Will ticket prices decline if they don’t get to premier the hottest release?


So what has happened in the last month?

  • Central bank credibility has taken two steps back with all the flip-flopping.
  • Traders are forced to continue to chase risks they know are dangerous.
  • Global PMIs are sagging from the optimistic levels they achieved earlier in the year.
  • And don’t blame it on the lack of a fiscal agenda that was DOA a long time ago.

Why invest in real things if the message is, let the band play on? Very little is being achieved by this timidity, which can’t be described as prudence.


I suspect that the members are as transfixed by political events as the rest of us. But, frankly, that sort of nausea shouldn’t be used as an excuse for their inaction. If they are waiting for Washington to sort itself out in addition to inflation being exactly where they want it, we’re in for a long haul. And if they really are terrified then we are owed that message as well. They bare their emotions on every other topic.


The ECB, BOJ, BOE are all chilling. The Fed should take that as comfort that they have others smoothing their way rather than as a cautionary tale.

There are two problems with this "heads I win, tails I win" world:

First - this cannot go on forever...

And Second - at least one market is eyeing October's debt ceiling deadline as a problem (and combine that with The Fed's decision to begin unwinding its balance sheet around the same time, expectations for the return of volatility should be high)...


Fitch Viscous (not verified) Mon, 07/24/2017 - 09:03 Permalink

Is zerohedge calling for another crash? So that mean s new highs coming for the us indexes. The only analyst you have any good anymore is SHEPWAVE

lester1 Mon, 07/24/2017 - 09:07 Permalink

NOTHING will crash as long as the Federal Reserve remains unaudited, and are able to buy bonds and covertly buy stocks! On August 24, 2015 the Fed's PPT outed themselves by magically reversing a -500 point drop in the DOW in just 15 minutes. Who remembers that??

Uncertain T Mon, 07/24/2017 - 09:07 Permalink

All the CB's and world governments seem to be content with letting the whole thing keep 'spinning' round and round.... Until it suddenly stops from widespread defaults.

Overleveraged_… Mon, 07/24/2017 - 09:10 Permalink

Folks, even IF the market went down a few points, they would simply put Yellen and Brainard back on the mic for some dovish talk. It doesn't matter if central banks are credible or not. The fact of the matter is that this market is going to continue it's forward march. As long as Trump is at the helm, Stocks are going to continue gaining. Earnings dont matter, fundamentals don't matter, the economy doesn't matter and evryones fears about a "crash" certainly do not matter.Honestly we should be thankful that this market is so easy to predict. For the first time ever I am making easy money.

Stormtrooper Mon, 07/24/2017 - 09:15 Permalink

Hah, the Federal Reserve is expert at crushing the bond vigilantes.  They have unlimited resouces (paper and ink) to do what they need to do.  Let's see how many are crushed by their bets on higher rates regardless of what happens in D.C.

Solio Mon, 07/24/2017 - 09:15 Permalink

What credibility? The CB's had to approve of robo-signing and NINJA loans.Thanks for all of those homes, say the CB's.Didn't you get the thank you note?

J J Pettigrew Mon, 07/24/2017 - 09:17 Permalink

Central Bankers...while attempting to smooth out all cycles they create a mega cycle.Cycles have value as they sift out excesses in the markets....Central planners do not believe in this...

Too-Big-to-Bail (not verified) Mon, 07/24/2017 - 09:35 Permalink

I don't know how long the central banks can keep up the artificial stimulus and manipulation necessary for markets not to euphemistically "revert to the mean" (love that term), but it can't be forever or even too much longer, because -- simply put -- how long can a parasite continue to live when it grows larger than its host?