One Trader’s Warning: The “New Normal” Will Not Feel “Normal” At All

To be clear, I despise confirmation bias. If all you’re doing in your “research” is seeking out narratives that confirm the one you’ve constructed in your own mind, then you’re wasting your time. You can only become more confident in your convictions by subjecting them to scrutiny and considering alternative narratives.

Still, reading things written by like-minded individuals sure is fun and I wouldn’t begrudge anyone a little indulgence every now and again.

With that in mind, I bring you the latest from former FX trader and Bloomberg contributor Richard Breslow whose take on markets very often mirrors my own. I’m particularly fond of this morning’s piece because it mentions cross-asset correlations, a topic which has become something of an obsession of mine over the last six months or so.


From Bloomberg’s Richard Breslow:

Well, one thing we saw yesterday, almost as important to note as the direction of the moves, was healthy two-way price action and volatility. It’s something we’d best be prepared to live with for the foreseeable future. These won’t be markets that grind in one direction, panic, then quickly recover as soon as the central banks decide enough is enough. Everything is in play and the story lines anything but clear.

  • Lots of assets are trending, yet in many cases they’ve taken us to what are largely unfamiliar levels. And unfamiliar equates to uncomfortable for a lot of investors. Given all of the many moving parts, there will be a lot of cross-asset correlations severely tested
  • We just may be entering a period when prices will adjust, and adjust hard, to actual economic, legislative and geopolitical events in a way we’ve forgotten. And I suspect that the news is going to feel like it’s coming at us fast and furiously. This new normal will be characterized by nothing feeling normal
  • The euro is trending down versus the dollar. But German inflation printed way high. Has anyone really considered the implications for the ECB if they start seeing price-rise momentum? Or if it matters at all given the enduring political risks that everyone talks about and refuses to price in. Unless of course you are watching EUR/CHF
  • Then there’s today’s Fed minutes (Chair Yellen was surprisingly hawkish at the press conference) and non-farm payrolls report (consensus a robust 180k) coming later to throw into the equation. Lots of moving parts, with the story evolving rapidly. Frankly it would be surprising if anything on the U.S. calendar this week derailed the current trends. Whatever happens, either laggards will be forced to chase the market at levels not seen in a long time or everyone with something will be wrong. Expect volatility
  • And we haven’t even begun to consider the implications for inflation and the dollar of things like the U.S. congress’s notion of a destination-based corporate taxing scheme. But it won’t be small. There’s a ton of untried policies up for consideration across the spectrum
  • With so much fundamental news flying around, the one note of caution I’d stress is to treat your chart points as instructive but not dispositive. There’s a lot of room for overshooting

One thought on “One Trader’s Warning: The “New Normal” Will Not Feel “Normal” At All

  1. Confirmation bias, as defined by Paul Simon: “Still, a man hears what he wants to hear and disregards the rest.” (From “The Boxer,” 1970)

Speak On It