S&P 500

Bubble Mechanics: ‘The Only Sensible Thing To Do Is Keep Buying’!

"We’ve come to hope and expect that payment for current excesses can be put off longer than our careers will last."

Richard Brelsow’s Tuesday missive is a gem.

It’s all at once a begrudging acceptance of the fact that trying to lean against the proverbial wind is an exercise in futility and an acknowledgement that at some point – even if the problem is left to future generations – someone is going to have to pay for the global experiment in accommodative policy.

But until such a time as we can no longer kick the can, it’s all about “instant gratification.”

Why worry about something today that, if we can just keep the bubble machine running on fiat dish soap, may not have any real consequences for another half-decade?

The only “sensible” thing to do when everyone else is buying the dip is to buy the dip even faster. In fact, buy before there’s a dip. That way, when the dip comes and the attendant dip-buying levitates risk assets to pre-dip levels, you’ll have already gotten in and saved yourself those few agonizing seconds spent wondering if this was the one dip that no one else was going to buy.

Meanwhile, the algos don’t care what you’re doing- “trading bots only care about finding what’s working and mining it.”

More below…

Via Bloomberg

I guess that until the G-3 central banks get back to business in the autumn, we’re just going to have to remember to compartmentalize. The world’s a scary place. Just read page one above the fold and try not to despair. Not to mention the fact that some of the really unsettling issues don’t even get presented with such prominence. But look at the global economy, watch asset markets trade and there isn’t a whole lot of bad news driving things.

  • Like modern life in general, we go for instant gratification. And we’ll worry about the other stuff another day and time. Besides aren’t central banks there to kick that can as far down the road as possible? Especially if things get really bad. There’s been a twist replacing the old Maynard Keynes line about markets staying irrational longer than you can remain solvent. We’ve come to hope and expect that payment for current excesses can be put off longer than our careers will last
  • Does Alan Greenspan’s warning yesterday about bond bubbles and stagflation resonate on some level? It does. On the other hand, ignoring his warning, and those analogous, is the only sensible thing to do. Factoring it into your artificial intelligence equations has been a sure money loser
  • You need to resolutely separate information that will be profitable now from news that’s going to matter to future generations. Everyone else is. Make sure you turn off the lights before you leave
  • Just as a bonus hint: When people start to figure stagflation warnings into their calculus, you’ll see it first in Treasury yields and only secondarily in corporates, both IG and HY. So if it ever happens, don’t be fooled by an initial compression in spreads. It just reflects the liquidity dynamics of the two markets. Needless to say, 10- year Treasuries are at 2.3%. Wait until reinvestment stops
  • Meanwhile, China is more than surviving despite the constant warnings. Japan’s growth is picking up. Europe’s doing all right. Even the likes of Argentina are putting up numbers like yesterday’s strong industrial production release. Did you see this morning’s U.K. or Russian PMIs? There are green shoots all over the place. Results this earnings season from corporates is a story of the good times rolling
  • Today’s RBA statement couldn’t find much of anything negative to say other than to push back on currency strength. All that was taken to mean that the economy was strong but no rush to tighten. Translation: party on. And if you need any explication of why algos buy dips, check out the Shanghai Composite over the last two months. Crushing regulation indeed
  • Trading bots only care about finding what’s working and mining it. They figure what we humans do in our spare time is our own business

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