Relative to the market's complacent nonchalence this year, the last two weeks have seen violent swings across almost every asset class as 'no brainer' stocks tumble, perennially dovish central bankers turn hawkish, and suppressed volatility has a mini-Minsky moment. But for all the hand-wringing over this 'regime shift', former fund manager and FX trader Richard Breslow has a simple message; calm down and be careful what you think happened this week...
# It’s been a week filled with hyperbole. Trial balloons dressed up as pre-commitments. A little volatility described in cataclysmic terms and compared to jarring historical market upsets. Feverish extrapolation masquerading as revised forecasts. Central bankers daring to go where no one has gone before.
It’s been an interesting, and in many ways fun, few days, but based on what we can possibly know at this point, unlikely to be enshrined in trading lore.
I hope I’m wrong, but the moves we’ve seen this week don’t strike me as dispositive of anything. Is the dollar offered? Yes, but that’s been the case all year, the flip side of the euro. But the important test will be how it closes today. More important to me than the range extensions we’ve had the last few days.
If this time things are really different it shouldn’t be pausing into quarter, month and week end, giving those who “don’t have it” a chance to get in. It should force me to look into the abyss and have to decide whether I’m prepared to reach for it. That’s how powerful trends behave and they’re not benign: despite what they look like on charts after the fact. Equities, too, have spent the first part of the day looking comfortably benign. If traders thought there was any chance that the “put” had been replaced by a “call”, we wouldn’t be talking about sighs of relief, reassessments and that the S&P 500 future is trading in London only one percent from all-time highs. It’s as true as it’s been all month: until we close below 2400, spare the discussions of how much wealth has been destroyed on every pull-back.
There’s even been a lot of talk of taper tantrums in bonds.
Really? Ten-year Treasuries have made one tepid attempt at 2.30%. People describe bund yields as having exploded higher. But having managed to rise to 44 basis points, it would be indecent to describe anyone one as bleeding from the face. Yields are indeed higher. They should be. But so far Treasuries are closer to YTD lows than where they were in March.
And what’s to be said about commodities? Unless the price action is analyzed and described in financial asset terms rather than contrived fundamentals, they will continue to be misunderstood and poorly traded. And leave off the “entered a bear market” line.
Maybe everything will boot off next week, but it’s wishful thinking to claim we’ve seen trading Paree, just because a pigeon flew by this week.
# We hope, like Breslow, that this is tempest in a teapot but as John Bollinger warned yesterday, there can't be too many more of these 'events' before they catalyze something bigger.
"Another volatility event in the US stock market. This is going to get out of hand one day"....