I was just plowing through the Sunday opening prices, that part of a Sunday evening where you watch FX open up first and try to garner a sense of how much emotion there is in the market before equity futures get going, but couldn’t really see much going on. I was wondering what to do with a couple of positions and what to initiate, if anything, but really couldn’t get a grasp on what to do and thought I was going to lose my mind. This feeling of confusion grew until I realised that the subliminal power of the Chemical Brothers track 'EML' was the cause as it emanated out of my laptop speakers. “I don’t know what to do, I'm going to lose my mind’. I don’t know why it’s taken me a year to find The Chemical Bros album ‘Born in the Echoes’ but the first two tracks are fantastic with 'Sometimes I feel so deserted’ an electric tonic to lethargy, borrowing a strong stylistic reference from Swedish House Mafia.
But enough of the background music, now for markets.
I was out playing on beaches on Friday so missed the dump and even now I’m not sure what caused it. I get the ECB, indeed I shorted BTPs during Draghi (again, oh widowmaker) but I don’t get the equity dump, it took 24hrs after Draghi spoke to get going which seems too long for it to be purely him causing the shake down.I know it’s September and I know that we all have cupboard loads of reasons to sell equities, those cupboards having been stacked full over the last 3 years, but why now and how far is the fall going to go?
There has been some messy stuff going on for a while. JGBs have backed up, Draghi has taken his foot off the accelerator, Brexit hasn’t induced a slowdown demanding global easing, US data is implying a slowdown and all the while, well for the last 2 years, we have had the soothsayers telling us doom is around the corner. Central bankers see themselves as financial environmentalists, guiding behaviour to preserve financial habitat. But they're killing financial diversity and masking environmental signs of trouble. Central Banks are not environmentalists, they are just the opiates of the economy - instead of treating disease, they just mask the symptoms whilst the disease gets worse. And not just opiates. Ecstasy to masses, MDMA to the banks, crack to the bond market, smack to the politicians and LSD to traditional economists who are having the weirdest trips seeing terrifying things from the future crawling up the walls of worry.
The central banks are the Chemical Brothers here and most of them are at the point of “I don’t know what to do, I’m going to lose my mind’.
In one of my posts from last week, I mentioned that volatility could go up without the underlying falling. I can see vol moving higher again, but I am a bit surprised to see a return of volatility already starting to stir up the ‘I don’t know what's happening, let’s blame risk parity’ brigade. Which has me believing that risk parity is not the game, though I am smirking at the funds who have sold vol as a hedge against no vol.
It is September and there are things one could hang a fall on retrospectively but I am not excited about this fall yet. Look at it this way, 50pts SPX may look a lot over two days but it's still only 50pts over 2 months. However, my key indicator as to how bad and how far this could run is if we see bonds AND equities dump. If I wake up and see both getting torched then I am out and running for cover. Deep cover as when bonds and equities fall we are in for a mess that hasn’t been seen in the past years that indicates confidence in CB policy is finally over and the financial world becomes a Hieronymus Bosch painting of fire, brimstone, helicopters, inflation, and worshipers of Zero Hedge (who have quite rightly blocked me on twitter - I wear it as a badge of honour).
It's midnight here in the UK now Sunday night, I’m going to go to bed and will be buying the European open, hopefully by then everyone will have bigged up a fall and Stop Loss City, New Zealand, will have had their pound of flesh, all Asian traders done what they think someone bigger than them has done (rather than think for themselves) and we have a lovely chance for a 9.30 am London reversal as Asia come out of their K-Hole, as the Chemical Brothers may say.
Long oil, was great , now not so great as risk off.
Short BTPs. Going well since Thursday.
Long USDTRY, More good news in risk off environment.
Long Trump to win - I really wish I had bought because I want him to win rather than just believing he will, but it’s going my way, sadly.