A clearly frustrated - and rightfully so - Richard Breslow, vents his former fund manager and FX trader feelings in a brief note that we suspect will ring very true for many readers amid this farcical market where 'bad news is good news', 'constructive' can catalyze 500-point Dow ramps, and retaliatory trade tensions are buying opportunities because of the central banks' brainwashed-conditioning of the world's investors' risk attitudes...
Trade tensions have eased. Trade tensions have ratcheted up.
Things will get better. They have to. It’ll get worse before it gets better. Neither side can afford to back down.
Use game theory to figure this whole situation out. Use it to create a game plan.
React to every comment. It’s the only way to survive.
Buy the dip. Derisk.
And, of course, what is really the punchline: The global economy is set to grow and is in a “good place;” the numbers are cratering fast.
Which is it?
All of the above have featured in the discussion just this week.
The answer is we can’t know. It’s an old saw to point out that markets don’t like uncertainty. It’s overused and misused. But in this case it’s valid. And it is causing various asset classes to send out conflicting signals. That’s making a consistent, or even coherent, investment thesis hard to construct.
And this means investment commitments will continue to be delayed. Kicking the can down the road is a tried and true policy strategy. It won’t work here. You can’t easily rotate out of a partially built factory. No one can know what are really deferred intentions waiting for the “all clear” and which have been canceled. And it appears consumer spending might be following along. Monies invested abroad in risk assets will continue to be repatriated, masking true economic forces that are meant to clear markets.
Bonds will continue to be in favor. Even from those who, in ordinary circumstances, would look at the numbers and believe yields have fallen too far. That is making the path of official rates almost impossible to accurately predict. It sure looks like the short-ends of the yield curves have settled on what monetary policies are coming.
But make no mistake, uncertainty is the true order of the day. Safe havens pause for no economic reality when concerns are heightened and can be discarded just as dramatically. The duration of purchases that investors seek will vary greatly by the identity and location of the investor. A valuable sentiment barometer to keep a close eye on. There’s a reason following TIC data is all the rage.
You will get fierce sell-offs and rallies in equities that will have too much meaning ascribed to them.
Short-term speculators will be forced to furiously chase the market back and forth.
Long-term investors will be selectively picking their most favorite stocks for adding to positions.
Medium-term players will have less and less of an active presence as deciding how invested they really want, and can afford, to be will remain a question they just can’t answer.
To my mind, watching the market come to terms with what is going on is important not only from an immediate trading perspective, but to prepare for what distortions will have to be unwound when conditions become clearer. And that may be the better opportunity to develop a plan that can be stuck with and, of course, to make money.