One Trader Warns "To Ignore All Around You Is Playing With Fire"

Something changed in the last week or so. Several markets that had hitherto been unstoppable examples of central bank recklessness dominating rational thinking suddenly 'stopped'. Of course this is seen by many asset-gatherers and commission-takers as 'a pause that refreshes' but what if it's not? As former fund manager Richard Breslow warns, "you'd better believe things can change on a dime," and we suspect they just did...

Via Bloomberg,

I freely admit that I have a lower threshold for finding things funny at 3 AM than later in the day. But after laughing out loud over this line in a story, I actually thought it may contain some real wisdom. Especially, because there are so many alternate explanations of why various asset prices trade where and in the fashion they do.

The Nikkei 225 posted its biggest drop in seven months, as investors found no new reasons to buy after driving benchmarks to their highest in a quarter century.

You are starting to hear more and more people writing the rest of this year off, because of course, volatility is low and nothing will change. Markets are locked into tight ranges that presumably will break out on cue come January. If I knew that, I’d be trading up a storm in late December.


So many people are off and running forecasting just what to expect next year. It’s not worth dwelling on the obvious folly of claiming to have a solid handle on what’s coming down the pike. Especially when it’s broken down by quarters.


I read one today that laid out what to expect the currencies of the CE3 nations to do by the end of 2019. Read that while thinking about what the world looked like two years ago.


Forecasts do have their legitimate purposes, and at this distance are reasonably harmless. But unless you are strictly in day-trading mode for the duration, don’t fool yourself that what you have on now can be set to auto-pilot through year-end.


Over the span of just a few days, the Nikkei has gone from impulsively moving higher to providing a perfect technical set-up for those wishing to short it while controlling their risk. Who could ask for anything more? And it didn’t take some cataclysmic event. My theory is that local traders may have quickly reconsidered all this buying in light of learning how much of it was from overseas. And just how good a Japanese stock-picker are you?


But it’s not just Japanese stocks. The whole mood of the day changed during the last half hour of the Japanese trading day. People are overly blase because they’ve gotten used to manic mood swings signifying nothing. However sometimes from little contagions, mighty maelstroms grow.


Chinese money supply and credit numbers were clear misses, today. Not a problem: special factors and claims of opacity will keep this at the level of interesting debate for now. With enormous influence on how all those forecasts will pan out.


Now, ask yourself, for more immediate import, what a beat or miss from Wednesday’s U.S. CPI has the potential to do? Is anyone watching the Middle-East? What does your portfolio look like at $45/barrel versus $70?


Commentators look at the surface numbers and declare everything in Europe to be great. Best numbers in many years. Utterly forgetting, not understanding, or not caring that some of the disaggregated numbers are dangerous.


Lost generations have voting patterns that don’t fit what top-line numbers would suggest. Next year’s problem? Maybe. But like the Nikkei today, things can change, and quickly.

But Breslow sums it up perfectly as slowly but surely reality is peeking its head out from under the central bank boot of repression:

We live in interesting times. Better as well as bad. To ignore all around you is playing with fire...