In a market that can barely fog a mirror with its heartbeat, a sudden lurch lower - as we experienced overnight across all global risky asset classes - especially on the 30th anniversary of Black Monday, has sparked a cavalacade of "this is it" narratives as well as "this time is different" memes. However, as former fund manager Richard Breslow notes, no matter how much traders may want to ignore reality, the game is starting to change before our eyes...
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Stocks are down today and someone has to be assigned the blame.
It’s a shame that we always need to find the whipping boy du jour in order to avoid confronting the possibility of the impossible - that asset bubbles may be made of tough stuff but they’re called bubbles for a reason.
Are the problems in Spain for real? Certainly. As is their unemployment rate, but nobody has given a damn. But failure to place blame on something that everyone assumes will be a one-hit blunder risks a level of investor introspection that must be avoided, especially as we inch closer to the holiday season. Which is a more genteel way of saying toward high water-mark calculations.
What’s causing this particular setback, if indeed it can be called that? Two things:
- commentators complaining that it was getting boring reading on their teleprompters that stocks made new all-time highs; and
- the dawning realization that the central bank cast of characters who have kept these asset balls in the air really is going to change.
They say that markets don’t like uncertainty. Well, who will be running global monetary policy and how well it will be coordinated is the biggest potential uncertainty out there.On the same day President Trump is meeting with Fed Chair Janet Yellen for her “interview” for her job, PBOC Governor Zhou reminded reporters covering the China Party Congress that “people retire eventually.”
I doubt that was just a general commentary on life.The fact that the Hang Seng got its knuckles rapped has been put down to his warning about Minsky Moments and gotten all the play, but I think the former comments are what mattered. He’s been around for a long time and tolerated a lot of excesses that have contributed to the country’s economic success.
On top of that there’s speculation that the new coalition government in New Zealand may have different views on the prerogatives enjoyed by the head of the RBNZ and the currency got clocked. That’s the knee-jerk from foreign exchange traders on the outside looking in.
And irrespective of the fact that their local stock market took it all in stride and closed at all-time highs. Traders don’t like uncertainty because they so often trade things they know little about. Just wait for ECB speculation to heat up.
The game is changing and it has little to do with policy normalization. And everything to do with the irrational fear of change in a world that everyone professes to hate.