Day after day... another sabre rattled somewhere in the world, another policy-reform hype-destroying debacle in Washington, or another slump in 'hard' economic reality data... and another record high for stocks. Former fund manager Richard Breslow says 'get used to it' - at last until the autumn, when the central bankers return... "AI bots don't care." As he discusses below, it's not the economy, stupid; it's the trading bots...
I guess that until the G-3 central banks get back to business in the autumn, we’re just going to have to remember to compartmentalize.
The world’s a scary place. Just read page one above the fold and try not to despair. Not to mention the fact that some of the really unsettling issues don’t even get presented with such prominence.
But look at the global economy, watch asset markets trade and there isn’t a whole lot of bad news driving things.
Like modern life in general, we go for instant gratification. And we’ll worry about the other stuff another day and time. Besides aren’t central banks there to kick that can as far down the road as possible? Especially if things get really bad.
There’s been a twist replacing the old Maynard Keynes line about markets staying irrational longer than you can remain solvent. We’ve come to hope and expect that payment for current excesses can be put off longer than our careers will last.
Does Alan Greenspan’s warning yesterday about bond bubbles and stagflation resonate on some level? It does. On the other hand, ignoring his warning, and those analogous, is the only sensible thing to do. Factoring it into your artificial intelligence equations has been a sure money loser.
You need to resolutely separate information that will be profitable now from news that’s going to matter to future generations. Everyone else is. Make sure you turn off the lights before you leave.
Just as a bonus hint: When people start to figure stagflation warnings into their calculus, you’ll see it first in Treasury yields and only secondarily in corporates, both IG and HY. So if it ever happens, don’t be fooled by an initial compression in spreads. It just reflects the liquidity dynamics of the two markets. Needless to say, 10-year Treasuries are at 2.3%. Wait until reinvestment stops.
Meanwhile, China is more than surviving despite the constant warnings. Japan’s growth is picking up. Europe’s doing all right. Even the likes of Argentina are putting up numbers like yesterday’s strong industrial production release. Did you see this morning’s U.K. or Russian PMIs? There are green shoots all over the place. Results this earnings season from corporates is a story of the good times rolling.
Today’s RBA statement couldn’t find much of anything negative to say other than to push back on currency strength. All that was taken to mean that the economy was strong but no rush to tighten. Translation: party on. And if you need any explication of why algos buy dips, check out the Shanghai Composite over the last two months. Crushing regulation indeed.
Breslow concludes perfectly...
Trading bots only care about finding what’s working and mining it. They figure what we humans do in our spare time is our own business