By Mark St. Cyr
Since the initial turmoil began with the onset of what is now referred to as “The great financial crisis.” One strategy has proven more profitable than any other. That strategy? BTFD (buy the f___n’ dip.)
Regardless of what proprietary advice (short of insider trading,) nothing, as well as, nobody has had a track record worthy of comparison. All one has needed to do is, whenever a selloff occurred (as rare as they had been,) when “the dip” presented itself, the only thing to do was to “buy, buy, buy!”
Forget 2/20 management. Forget stock picking. Forget listening to experts, economists, fund managers, et al. You would beat them all over the last 6+ years if you just BTFD, then bought some more. It had been that easy. However, if it was that easy – why didn’t everyone “just do it?” Easy…
A great many (and I put myself squarely in this camp) still believed that the fundamental laws governing free markets and stocks were still at play. No one, and I do mean that as innobody with a modicum of business acumen thought, let alone believed the extent, as well as, the vast amounts of money printed ex nihilo by the Fed. would go on not only for as long, but also, in the amounts to which it has.
Now, today, some $4,000,000,000,000.00+ (i.e., over 4 TRILLION) later what has all this balance sheet accrual bought? Probably the bubble of all bubbles. The irony? That “bubble” is in the only true asset the Fed. had left. e.g., Confidence in their omnipotence. And it’s beginning to look more like it’s already popped with every passing FOMC meeting. And just as the name “bubble” implies – all it needed was the tiniest of pins to bring it crashing down. And it now appears a 25 basis point rate hike was just tiny enough.
Since the ending of QE in late 2014 one thing about the “markets” has been crystallizing more and more for everyone to see. Even if they try to turn their heads, it can no longer be avoided: without central bank (and now that includes all CB’s) continuous intervention – there is no market. It all falls apart like the house-of-cards that it is.
Again, without central bankers in one form or fashion continuously interjecting their willingness, as well as, openness as to do “whatever it takes” the markets will at first vacillate in place until they relent and plummet in unison causing conciliatory panicked responses from one central banker after another.
However, the responses to these actions or statements as of late have been in a way I believe these monetary bodies not only never considered, but rather, never thought possible.
Not only have they been creating doubt (as in saying one thing then doing the opposite) in their credibility, rather – their dictates are now having the complete opposite responses of their desired market reaction. i.e., Deliver a weaker currency inspired directive? That currency actually spikes upward and running ever higher!
This phenom first presented itself with the grandest of foolish monetary policies brought forth by central banking Keynesian devotees: Negative interest rates. e.g, NIRP.
First it was the European Central Bank (ECB.) Then the Bank of Japan (BoJ.) Sure there have been others, but these are by far the “big players.” The result? Exactly the opposite of what had been anticipated.
“Big bazooka” commentary from Mr. Draghi at the ECB along with “Banzai” styled implementation as witnessed via Mr. Kuroda at the BoJ saying one thing, than doing the exact opposite only a week later, has pushed not only confusion further into the financial markets, but also, sent global currency trades on a roller-coaster ride worthy of having its own theme park.
Both the €uro as well as the ¥en strengthened. And not by little amounts either. The resulting spikes were so sudden, and with such ferocity, the resulting margin calls for those caught within its death grip suddenly found themselves sharing the same experience as those on the fictional planet Alderaan, “as if millions of voices suddenly cried out in terror – then were silenced.”
You know who was more caught off guard with this move than those with positions on? The central banks themselves. All one needed for proof was the subsequent jawboning from one official after another to state emphatically: “Don’t worry, we got this!” (we think) As they tried desperately to reassure their “markets.”
Again, for proof: all one needs is to remember Mario Draghi’s now infamous mea culpawhen replying to whether or not his newest remarks were in reaction to the market’s response, e.g., “No not really. But not—well, of course. (Laughter.) And, It’s been pretty much the same only in different languages from one central banker after the next these past few months.
Yet, the one central bank that has been near impervious to this “credibility” or “omnipotent” issue has been the Federal Reserve. That is to say – until now.
Since the beginning of what is now considered “the zenith of unabashed central bank interventionism” few were willing to speculate, let alone admit, that without the Federal Reserve continuously pumping money in one form or another, while simultaneously keeping interest rates at the zero bound – the markets had no fundamental reason whatsoever to be at these current levels. Period. It was, and still is, a bubble created and encouraged by the central bank. Again – period. End of discussion.
And nowhere has this phenom become more visible and undeniable as made manifest over the last 14+ months with “market” volatility and price movement. Currently, the only direction the “markets” have shown a propensity to go in both momentum, as well as, fury during this period has been – down.
Currently up seems to only happen in response after some jawboning or implied immediate implementation. Where the theme is more mea culpa in nature. Rather, than fortitude or conviction of policy.
In other words: the moment we get up to levels I coined “fortitude central” (i.e., 2050ish SPX) where the policy members begin to show backbone and imply: “Yep, we’re going to start withdrawing accommodation.” The markets begin to reverse in unison. And as soon as it appears the level of 1800ish SPX is about to be breached? A reversal, or better said “capitulation of error” begins to show up (in unison) as one Fed. official after another begins touting backpedaling statements in one form after another. The real issue here?
The “markets” and it’s real players (i.e., HFT’s along with their headline reading algo’s and stop running programs etc., etc.) not only know this. I believe – they now know how to front run it with deadly efficiency. Exacerbating the issue of credibility as well as omnipotence for the Fed. Or, stated differently – the “market” now not only can push the Fed’s hand – It now knows at what level it needs to exert the desired response at will.
This phenom has now become so glaringly obvious even Fed. friendly publications such as Barron’s™ can’t avert from the obvious any longer as shown by their latest article titled,When The Fed’s Bullard Speaks, the Market Listens. All I’ll say is this: If the main stream financial press has finally figured it out – that’s usually your first sign that what ever bubble there was – has either already popped. Or, about too.
But not too worry, after all, I didn’t even mention China and their forthcoming central bank omnipotent policies. Remember, they know how to control and manipulate a market and currency better than anyone. Just ask them. And if you don’t like what they state today? Don’t worry – they’ll change it again any day or minute from now. Again.
But why be of concern? After all, it was the Fed. itself that just reiterated “international developments” is their first cause. So don’t worry. I’m sure they got this. Until 1800ish SPX that is. Then we’ll see just how much confidence to BTFD truly remains.