Ok, it’s time for your daily dose of Richard Breslow.
Today’s missive from the former trader-turned-man-who-hates-your-irrationality registers a four on the irritated meter, about a six on the cynicism meter, and a solid nine on the analysis meter.
There’s a lot to be said for keeping things in perspective and in that regard, we’ve all probably lost some over the past several years in terms of distinguishing between a real pullback and a couple of days where spreads were wider, EM didn’t rally, and DM equities were red at the margins.
That said, it’s hardly our fault that we’ve lost perspective. If you’re looking to place blame for everyone not knowing how to assess a down day, place it here:
Anyway, Breslow’s latest is below and as noted, it’s top notch in terms of analysis. Enjoy…
There’s plenty to be wary of in global markets. Not the least of which will be the central banks’ experiments reversing their balance sheet explosions. And the one-day and a half kerfuffle over North Korea certainly got everyone’s attention. But I have to say, that likening this recent episode to the sub-prime or European debt crisis is making a leap of analysis too far based on what we know now. And if those other episodes are any guide, all the great predictions of crises are mostly done retrospectively.
- Another thing to avoid is claiming that what is happening on the peninsula has somehow suddenly exposed unappreciated flaws in the financial system. The issue isn’t that they aren’t recognized. It’s that they are being consciously ignored with eyes wide open. I can guess where the history books will put the blame for that fact. And when we talk about the global environment, admit we’re really talking about the U.S., but don’t want to mention Washington in every discussion
- There is a way to look for body-language signs that risk premiums are about to be, as opposed to should be, meaningfully repriced. Investors will be elephant hunting, not parsing statistically meaningless data misses. Let alone fixating on the significance of being a couple of basis points above or below some moving average. “Get me out” and “Where should I buy the dip” don’t sound remotely alike
- Everyone is always looking for that canary in the coal mine, presaging a market extreme about to turn. Tough way to make a living, but you can avoid picking up a bar tab until the story gets stale. However, if that’s your intent, you can’t throw perspective totally out the window
- In this world we’ve created for ourselves, short-term correlations are always high. The algos will see to that. Asset prices moving in lock-step at the end of last week tells you nothing. Presumably we’ve forgotten what correlations approaching one feels and acts like or how high they need to be to warrant concern. Absolute levels are a lot more important than directional zigs and zags. Equities went down and the yen up isn’t exactly making the leap that explains everything
- In addition, much has been made over the fact that credit spreads did indeed widen. We’re talking IG spreads moving out about 10 basis points from multi-year tights. Before moving in yesterday. Today’s docket has a big debt offering from Amazon scheduled, which I’m willing to bet will be way over-subscribed. And potentially two financial institution deals among others. This is on top of the $70B IG already sold during this hazy, lazy August lull. The financial crisis featured markets seizing up and companies unable to fund themselves, not investors asking for marginally better terms measured in a few basis points
- If you’d like to spend your time profitably, rather than hoping to merely entertain the crowd, see if gold can go back below its Aug. 9 opening price at $1260. That’s something tangible that doesn’t factor in wanting it to be so