"2015 was unsually poor."
That's how Citi's iconic credit strategist Matt King begins his latest report, starting with a chart we have shown previously, namely that total returns across most asset classes in 2015 were downright miserable - "near zero or worse" - and that as a result the active manager comunity was humiliated to a degree not seen since 2008, especially in the high yield space, where as we know, several liquidating mutual and hedge funds were forced to gate over the past month.
Which brings us to the question every hedge funder, and especially their investors, have been asking themselves: "why did active managers struggle so much."
King's answer is twofold: on one hand contrarian strategies did not work, while on the other momentum strategies were often stopped out.
King asks: were managers "just unlucky, or is this a sign of something bigger."
His answer is emphatically the latter, and when looking at market dynamics of both position and flow-driven markets he notes that while "greater fool" investing has dominated for a while...
... now that the series of bubbles blown by central banks one asset at a time, is popping and the result is a scramble for cash...
... the investing world finds itself in a dire predicament: we may have run out of "greater fools."
Which is terrible news for the greatest of fools: central banks themselves. King's summary? we are close to a paradigm shift because central banks couldn't even push up inflation breakevens, never mind markets.
The conclusion: "central banks grip seems to be fading."
Which means investors now find themsleves in a world without "greater fools", and in which the central planners' iron grip on markets, is fading.
Is there any wonder panic has returned to a "market" in which fundamental investing, long forgotten, suddenly matters once more and as we have been showing over the past 7 years - undeterred by the great Copperfieldian act put on by central banks since 2008 - the fundamentals of both the economy and the market have never been worse?