Former trader and current man sitting across the desk from you banging the keys way too hard when he types, Richard Breslow, is out with his first missive of the week and he’s hit himself another home run.
First of all, Richard reminds you that just because “the price is the price” doesn’t mean that “the market is never wrong.” If the market were never wrong, then the concept of alpha and really, the idea of an “arb”, don’t make a whole lot of sense. So we were ecstatic to see Breslow disabuse folks of a notion that is patently absurd on its face.
Beyond that, Breslow expresses his displeasure at the notion that we should all wake up to “a sea of green” just one day after we saw everyone’s worst fears realized in Spain and on the heels of a tax reform proposal that barely even qualifies as a “plan.”
Read below as Richard subjects you to your daily dose of Breslow-vian cynicism.
I’ve never cared for the comment that, “the market is never wrong.” They misunderstand things, or simply get out of whack from flows or unbalanced positioning, all the time. It is true, however, that asset prices are where they are, and there’s no benefit railing against them. Policies yes, mark-to-market no. And from great mispricing can come wonderful opportunity as well as pain.
- Having said that, while there weren’t any meaningful overnight moves I have a hard time getting my head around, I find them deeply dissatisfying. On a purely emotional basis, I was torn between sell everything — hard to do in foreign exchange — and wondering anew whether news itself no longer has any meaning for investors. And yet, I know neither view is smart or a very clever investing thesis
- It’s ironic, that the good news for Monday trading came from China’s official manufacturing PMI. And they’re on holiday for the week. Proving perhaps, once again, that in this dysfunctional world, that’s the least dangerous place for officialdom to be
- The Swedish manufacturing PMI was also really nice and has seen some krona buying on the back of it. But that needs the context of last week’s Riksbank announcement that sent the currency reeling. In a gross over- reaction in my opinion. See, markets aren’t always “right”
- But the news in a lot of places is just plain unsettling. Seeing a sea of green on my equity screens make the cynic in me proud to not be surprised, but it just seems in poor taste. Ignore those little people behind the curtains and focus on tax cuts. And by little, I’m not referring to any physical attributes
- All right, I’m done. So where do we stand? On a purely technical level, sterling looks to be in trouble. We’re all focused on the euro today, but it’s pounds that have leaked through support. Party conferences in the U.K. seem to aspire to mimic the Chicago Democratic convention of 1968. Not a good role model, but a sign that the sharks smell blood
- The dollar has been on the move. Watch how the dollar index trades if it reaches 94. The euro too, has been weak but has hardly broken down and won’t have until it gives back another big figure
- Sovereign bond yields have backed up but have shown no signs that they want to move into important new ranges. It’s nice to talk about potential hawkish Fed governors in the wings or tapering getting closer in Europe, but to date rate panic is nowhere to be seen. Made more confusing because Friday’s non-farm payroll is a stab in the dark after the hurricanes. In any case, forget the technical lines for a moment, Treasuries and bunds at these levels still represent crisis pricing whether we like to admit it or not. Yet it all looks risk on, as we’ve come to define it
- Gold seems like it knows where it wants to go, proving that advice that everyone has to have it in their portfolio is better made sometime before it bounces to gain another $150
- There are a lot of official holidays this week. That can’t be ignored as we describe the mood of markets as they move through their days