Bloomberg's Richard Breslow, former FX trader and fund manager who now comments on markets, has been on a roll lately. One week ago, he officially lost it, going on an epic rant how central banks have devastated "markets" with their constant intervention (proven yet again with today's report that the BOJ now is a Top 10 owner of 90% of Japanese stocks): "You don’t need to be a Taleb or Mandelbrot to calculate that we have been having once in a hundred year events on a regular basis for the last thirty years" he raged.
Today, his post-weekend anger has crystallized in another aptly titled note, "You Have to Go With the Central Bank Flow", in which he writes that "for traders, just when they were promised an end was in sight, policy divergences would become tradable and correlations would weaken, the nightmares keep coming."
The solution: "investors must live with the reality of having to make their living front-running the central banks or be distorted out of existence."
Well, such is life under central planning: any original thought or fundamental analysis is crushed and the only thing that matters is anticipating what Janet Yellen will have for dinner next. Traders - and the general public - had a chance to restore normalcy when the entire system crashed, by averting bailouts and allowing a reset; now it's too late.
Here is Richard Breslow on the verge of losing it again:
You Have to Go With the Central Bank Flow
Markets are behaving as if the shock and horror of the financial crisis has finally led to full-blown post-traumatic stress disorder. For traders, just when they were promised an end was in sight, policy divergences would become tradable and correlations would weaken, the nightmares keep coming.
The problem is, that despite all of the emphatically reasoned analysis, no one really believes anything. And it may not pay to. The distortions are just too great.
The periodic declarations of mission accomplished were not helpful, quite the contrary. Wishful thinking turned into gloom time and again. Testimonies, elections and book launches shouldn’t be contrived as opportunities to mark misleading milestones.
The investing landscape is overpopulated by straw men. The IMF says global growth is slowing dramatically. And the response is, Kansas City has bounced back nicely. We’re on the path to normalizing policy it’s been declared. Ignore that continually reinvested $4 trillion balance sheet. At the same time actual investors must live with the reality of having to make their living front-running the central banks or be distorted out of existence.
Central bank balance sheets are growing, and fast. They’ll never be sold off. And it was disingenuous fantasy to have ever thought that a possibility. The most optimistic thing you can hope for is the bond portion runs off.
As we dive headfirst into a world of sovereign wealth funds out to solve all problems with activist investing, don’t get your hopes up. It’s bad enough that the BOJ has gobbled up the Nikkei. What will be the effect (conflicts) when sovereign wealth funds go all-in abroad? Think it was a big deal to be threatened with a Treasury portfolio sell-off? Wait until it’s the S&P 500.
It’s business as usual, but it’s not business as normal.
Sorry Richard, but as Goldman put it so politely yesterday when explaining why Japan has no option but to proceed with helicopter money, "the BoJ is already so long into 'the reflationary trade' that it has to continue to deliver further accommodation for the time being." The reality is that absolutely the same is true of all the other central banks. Which means that for traders this "nightmare" will not end until the very last central bank is finally shut down.