Having had 24 hours to settle back in from his well-earned vacation, former fund manager and FX trader Richard Breslow is no more enthused with the level of cognitive dissonance on show in the markets than he was yesterday.
“We like to think that disagreement is what makes healthy two-way markets. But when the differences are too profound things can grind to a halt. “
And that certainly is what it feels like now, the summer doldrums on the one hand and occasional liquidity gaps on the other, not withstanding. Making the situation even more extreme is that no one is really sweating the small stuff. Whether a number’s beat or miss matters or not is something we can all agree to disagree about and accept as passing noise.
Investors, however, are at loggerheads over the implications of really big, fundamental issues. Ones that can’t be ignored, nor, it would appear, satisfactorily understood.
Too bad, because your year may depend upon it.
What’s the significance of the rapidly flattening yield curve? You would think there has been enough experience with this issue for there to be some form of economic orthodoxy about the subject. Not anymore and not even close. If someone else tells me not to worry my pretty little head about it because it’s all terribly technical rather than predictive of anything, I may have to scream.
This week, we get two sessions of Fed Chairman Jerome Powell testifying on the economy. The dispersion of published views about what he’s likely to say is remarkably narrow. Yet, we simultaneously have responsible and respected economists arguing that the Fed should immediately cease and desist with their tightening plans and others finding even the current dots as too timid. Not exactly the one-and-a-half or two debate of quainter times.
Even the subject of trade wars and tariffs has people splitting hairs about how much they really cost and just how bad they might or might not be. Sometimes, side by side on the same editorial page. And what, if any collateral damage lurks out there. This is usually when both sides feel magnanimous by conceding that the other may be right but it isn’t their personal base-case scenario. That way you get to do what you want anyway while appearing to be open-minded.
Markets are moving, there’s money to be made, but I get the distinct impression that the majority of traders out there aren’t having a lot of fun doing it. Buying duration as a hedge might make a lot of sense but it isn’t what most people thought they’d be doing at this late date and at these yields. Although some of the latest year-end rate forecasts for the long end of the Treasury curve suggest it might be a reasonable idea.
It’s a complicated world. Perhaps one suggesting it’s worth keeping it simple.
You can’t look at the S&P 500 and not respect 2800 as the pivot. Close and clean.
Today’s important for the Bloomberg Commodity Index. Want to catch a falling knife? You may be getting just the set-up for it. Through yesterday’s low and all bets are off.
Emerging market currencies are also showing indecision after their drubbing. Is it worth one percent to take a flutter on the MSCI?
Lots of disagreement across the board. It seems that the only thing people can agree on is that Helsinki isn’t always the best of places to visit.
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Author: Tyler Durden