Surprise! Markets Can Go Down Too!

I was waiting on the right time to highlight the latest from Bloomberg’s Richard Breslow on Tuesday.

As stocks continue to meander lower on the back of heightened concerns about America’s increasingly fragile democracy and the Trump administration’s insistence on pushing a protectionist, nationalist agenda, I think that time has come.

I’ve noticed a propensity among some market participants (mostly those shouting from the peanut gallery) to point out the post-election rally as though it were something new. Something uniquely “Trump.”

These folks seem to have forgotten that stocks have essentially gone up in a straight line since 2009 – a couple of VaR “tantrums” and China-led freakouts notwithstanding. That’s not exactly how things are supposed to transpire. At least not in a world where outcomes are both positive and negative.

That is, the market should respond to real world stimuli – and not only ex post facto. Markets are supposed to be a discounting mechanism. A real-time referendum on all the sh*t going on in the world, to put it colloquially. 

Below, find the latest from Breslow, which finds the former FX trader bemoaning the fact that, like Chinese housewives turned leveraged, Shenzhen day traders in the spring of 2015, investors don’t seem to understand that markets can go down as well as up.

china

Via Bloomberg’s Richard Breslow

Markets go up and they go down. That’s a good thing. Had I made that statement two decades ago, I’d have gotten a “well, yeah” in response. Their function is supposed to be to discount future results and the impact of events on a real-time basis. Alas, we’ve lost the vital understanding that markets, like economies, have to be cyclical to survive and self-correct. Or at least impose pressure for policies that make sure those cycles don’t fly out of control.

  • Nowadays, we have markets that have gone up or markets that have crashed. When they rise, the powers-that-be are doing their jobs and investors are getting their just rewards. When they go down, everyone just got their pockets picked. And someone needs to do something
  • This is all understandable from the Fed put, trickle-down world. The problem is, it destroys all perspective. The Dow slipped back below 20,000. So what? It was at 19,000 a couple of months ago. But suddenly it’s “crashed”. It closed yesterday only 70 points above its 21-day moving average. And it’s all his fault
  • If it’s indeed a response to the bestial nature with which the most recent official pronouncements were made and poorly defined, that’s all right. And, if we had any perspective, we acknowledge, surprisingly and perhaps tellingly, modest. Which isn’t a comment on where it goes from here
  • Markets are supposed to speak. They’ve forgotten how and are no longer sure it’s their responsibility. We love to talk in terms of “bond vigilantes”. Evoking romantic memories of distant times when traders wore suspenders and were allowed to smoke cigars on the trading floor. How about prices merely adapting to evolving conditions? Investors aren’t demanding action on runaway inflation. They do as their told by their central bank
  • We’ve also morphed into using overly simplistic interpretations of an increasingly complex world. While all the attention was on the U.S., how little remarked upon was the fact that European sovereign spreads to Germany were busy blowing out. Not in small part due to issues very similar to what was causing all the trouble in the U.S. And explains why the dollar index is little changed since Friday. Despite the “irreparable” harm to the brand. And gold remains well inside last week’s range

 

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