By Richard Breslow, Bloomberg macro commentator and Markets Live reporter
I’m going to a gathering tonight hosted by our MLIV global markets blog. The first panel discussion is the one that really piqued my interest. It is entitled: “Bull Market RIP?” and the first thing that ran through my head was: “Which market?” I know now that the emphasis is on equities. But it really could be any number of asset classes, regions, geopolitical balances and time frames.
There are an inordinately large number of markets in play. And they all seem to be somehow at the same time interconnected but marching to their own drummers. It’s a very difficult time to weave a one-size fits all tapestry. And maybe, for the moment, it isn’t a great idea to try. Inspiration, or at least some clues, will come from the trees not the forest. Stay closer to the markets you know best.
I was wondering why this should be. After all, what has been going on of late appears to make a lot of intuitive sense. I’m down with a higher dollar and bond yields. A somewhat steeper Treasury curve seems entirely appropriate after its massive flattening and nascent hints at inflation. Or, more meaningfully, inflationary expectations. And equities caught within powerful technical bands with very tradable and, to my mind, clear pivot levels.
But the spanner in the works preventing me from having a story and sticking with it is that there are an inordinately large number of exogenous disconnects. Other global markets and economies most decidedly not playing along. Geopolitical risks in virtually all parts of the globe feel mispriced. These aren’t Black Swan events and the lurch back and forth between search for yield and panic liquidation risks becoming an increasingly untenable investing thesis.
Algorithms still think bad news will ultimately be good news. And that’s wrong. Positioning has too large an influence in markets where at any time liquidity goes missing.
And distortions built up over the last decade mean even large corrections that will play out over what feels like an eternity can happen without changing the really big picture. But it won’t feel like it. Despite best efforts to ground my ideas using long-term charts, the shorter ones keep pulling me back in. Maybe this is a sign of regime change toward greater market normality. But if it is, it’s only the earliest of days.
It’s completely understandable to consume Fed speak with gusto when trying to trade these markets. Like it or not, they have been largely correct and have been doing the right things. As long as they don’t hang us with a headlong rush to excessive deregulation. But I can’t help believing that going forward it is the other central banks that will offer the better clues where global markets are going. Talk is cheap. Having the resolve to actually raise rates another matter all together.
I’m in full-on trust but verify mode. Leveraging up seems quite risky, and I wouldn’t be doing it, which clearly belies my generally constructive view. Sometimes it is best to trust your instincts.
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