I don’t know, sometimes I think you people are all fucking crazy.
To be sure, this was always a casino but the rapidity with which information can spread and the interconnectedness of global markets has seemingly turned this whole thing into a giant video game, complete with FinTwit which functions as the market equivalent of those headsets gamers wear when they talk shit to each other in real time while they play Halo and Call of Duty.
The BTFD meme isn’t a meme anymore. It’s an actual “strategy” thanks to the unshakable faith in central banks and the hilarious thing about it is that most of the people who subscribe to it don’t even know why it works.
Over the past couple of days, the BTFD debate has gone into overdrive with Goldman’s co-head of global equities trading Brian Levine telling clients that in his view, “this is a genuine regime change, one where you sell-the-rallies rather than buy-the-dips.”
Meanwhile, Man Group Plc’s GLG unit CIO Pierre-Henri Flamand voiced similar sentiments in an interview with Bloomberg, saying that while “the instinctive inclination to ‘buy-the-dip’ may be strong, the past week has shown this may not work so well [and] indeed, we think what we have seen in the past week could continue for some time.”
Again, the fact that we’re even having this discussion where ostensibly serious people are effectively debating the relative merits of the “I was told there would be Lambos” joke is a decidedly unnerving state of affairs.
In the background, the foundation on which this entire post-crisis regime is build is cracking as central banks seem determined to normalize if only to replenish their ammo so they can do the whole song and dance again during the next meltdown.
One of the major issues here is how Jerome Powell responds to rising inflation pressures and as BofAML writes on Monday, “there is also a complicating factor [as] leverage in equity markets has surged to some of the highest levels on record, just as private investor cash positions have tanked to the lowest point in years.”
So I mean, you’ve gotta wonder what would happen there if inflation pressures continue to build against a backdrop of an overheating economy and expansionary fiscal policy, forcing the Fed to act and finally creating tighter financial conditions.
“While Jay Powell’s credentials are strong, the market has yet to assess his ability to guide policy,” BofAML goes to write, adding that “unlike for Bernanke or Yellen, the market cannot go back to Powell’s academic writings to infer his thinking in a broad range of crucial economic topics.” This uncertainty, the bank suggests, is partially responsible for “risk assets being on a fire sale.”
The most worrisome thing for BofA, is that in an environment where “cross-asset correlations have already started to trend higher and volatility across markets has spiked”…
… “every asset class has delivered negative real returns year to date, with the exception of cash.”