To be clear, you don’t ever want to count out the dip-buyers.
After all, this is a market that’s been governed by a self-fulfilling prophecy – an ever more efficient dynamic that optimizes around itself precisely because it has to – for years. Recall how we described this earlier this week in a piece about fragility events:
The increasing rapidity with which intermittent flareups collapse has been a defining feature of markets over the past couple of years and this dynamic has become especially prevalent since Brexit.
Part and parcel of that dynamic is the idea that the central bank put has become self-sustaining – it runs on autopilot. Why wait on dovish forward guidance (or any other signal from the monetary gods) to buy the dip when you know with absolute certainty that in the unlikely event a drawdown proves to be some semblance of sustainable, policymakers will calm markets? If you know it’s coming, well then you should buy the dip now. This becomes a recursive exercise as everyone tries to frontrun everyone else and before you know it, dips and vol. spikes are mean reverting at a record pace as the prevailing dynamic optimizes around itself.
Of course that’s been thrown into question of late and in addition to Trump’s shrill tweets on trade (and on the “dieing” “Alex” Baldwin), traders woke up on Friday to news that Kuroda – the mainstay of mainstays when it comes to accommodation – mentioned the word “exit” in the context of stimulus today.
That, against a backdrop where Jerome Powell clearly hasn’t mastered the art of ensuring the two-way communication loop between markets and the Fed continues to function as it “should” (relationships are hard Jay, especially reflexive ones).
So maybe this isn’t the time to try and explain away events that are just plain old ominous. As we put it on Thursday, “eventually, dumb shit is recognized for what it is,” and what’s going on with trade definitely falls into the “dumb shit” category.
One person who is a bit skeptical about attempts to either find the nuanced silver lining (or if not the silver lining, at least a reason to explain away the bad news with minutiae), is former trader and current Bloomberg columnist Richard Breslow.
“Sometimes things are just good or bad and nuance is a form of laziness,” he writes on Friday, before advising you to “take a serious gander at the issues being served up and then decide if you’re more inclined to spend this first Friday of March itching to buy the dip or wondering where the safe havens really lie and who you know that is prepared to step up to the plate offering oodles of liquidity.”
Next, Breslow moves to lampoon those who think they can extract something profound from every incremental second-tier econ print but who are summarily dismissing a massive threat to the prevailing world order. To wit:
Read the responses being expressed, literally all over the world, and there is universal appall at the renewed trade- war threats. Warnings of retaliation, in the baldest terms. And from our allies, too. The dismay at the hostility of the verbiage. The unseemliness of the gleeful Tweet boasting that “trade wars are good and easy to win.” Now, a few hours on, it’s being explained to me that steel and aluminum aren’t important enough to derail anyone’s economy. And this from people who go apoplectic at minuscule misses on second-rate economic numbers. What this implies, the messages it sends, are completely overlooked.
Again, don’t count the dip-buyers out and we’d be remiss if we didn’t note that the stage is now set for Kuroda to hit the market with something extremely dovish in an effort to walk back the interpretation of his Friday comments.
Still, Breslow’s bottom line is worth mentioning.
“In a world where so much is changing, it sure feels more like a throwback to the pre-weekend risk choices we had to make during the depths of the financial crisis,” he observes, before delivering the real takeaway: “With ‘financial’ being inadequately inclusive.”