My dad says it was a love-hate relationship when my mom passed away.
I called it a tortured love relationship, taking the hate out of it. A first hand experience is necessary to comprehend and make some sense of all that is happening around the markets today.
Lets talk about Europe. Love or hate Germany. Like it or not, Germany is holding the unholy union together which should not have been consummated in the first place. Most kids hate their parents when they are younger, make peace and then appreciate them in their mature years. That was my relationship with my mother.
Its easy to oppose the ones in power and hard to fault the down trodden victims. Hate the rich because we are poor is a repetitive pattern since time immemorial.
QE and stimulus
We love and hate QE. We know its fake and its causing unworthy assets to rally. The S&P single stock correlations have never been so tight.
The 30-day correlation coefficient between the MSCI World Index and its members in that industry is 0.92, compared with the average since 1995 of 0.73, according to data compiled by Bloomberg. Readings of 1 mean prices are moving in lockstep. Source : Bloomberg
No wonder hedge funds are closing down. Discarding the ego, to admit that they have no superior edge in second guessing the next move of the Chinese, Japanese, US and European governments.
|California Hedge Fund Is Latest Europe Crisis Casualty|
Central bank and political meddling has left the market in chains and shackled to policy decisions. Do we really need the uncertainty ?
Uncertainty is pervasive in the global marketplace now. Where there is uncertainty, Fear lingers. The Economist video below professes in the US context that policy indecision and contagion control in a free marketplace leads to heightened instability in the markets. Instability which leads to heightened correlation which leads to investment failure, like the specialist hedge funds.
|The Economist||Why so much uncertainty?|
That is perhaps why the right wing will win the Greek election. Unemployment is 22%, but the 78% will not want to risk their jobs and their Euro savings. Rebuilding is a big uncertainty that Argentina can attest to and now we have Argentina, after over a decade, still struggling with the public’s love for the USD.
|14 Jun WSJ : Argentina Gets Tough on Dollars|
This is how I see it for the cornered countries, Greece, Spain and gang.
Brewing Resentment — Public Dissent — Fear & Uncertainty — Grudging Acceptance (we are here now)– Tipping Point ? — Revolution/Rejection
Inspired by Acemoglu & Robinson’s Why Nations Fail.
Too Big To Fail ? Or Too Hard To Understand ?
I was speaking to a young friend who had a brief foray into the world of London banking. She popped an innocent question to me.
Can the top management in the risk departments of the bank really see the entire picture ?
Because she could not and felt all the more inadequate for it.
My answer is NO WAY.
Do central bankers know exactly what they are regulating ? NO WAY.
It is a “blinkered” world these days. Black box models telling us not to bother to understand too much. Black box models made up of a bunch of black box models, each designed by different people of whom not a single person has a complete grasp of.
We are humans. Not processing machines.
When you are uncertain, you usually take a step back and assess. If a gun is placed to your head, you will make a decision you could regret. And that is what is happening right now. Central bankers are making comments and decisions that reflect their humanity.
Does that make us really scared ? No wonder Gold is not rallying that much.
Trading in a Maelstrom
Did Jamie Dimon know about the London whale trade ?
My 2 cents worth is YES. Because the poker game was betting against the world and the winner is the one with the bigger balance sheet. Banks win. Stops are pulled everyday because trading desks not only have the benefit of seeing customer trades, they also have the luxury of the stop loss order book.
Boaz Weinstein supposedly brought down Bruno Iksil. But really, all thanks goes to the press report. Because had that story not leaked, JPM would still be ruling the world.
How then to trade in this maelstrom ?
Correlation Lah !
Mark Mobius tweeted something that got me thinking.
“So far, I haven’t seen a substantial economic impact from the Eurozone crisis in emerging markets.”
That is the key.
EEV US (UltraShort MSCI Emerging Markets) and EUM US (Short MSCI Emerging Markets). Worth a look for correlation’s sake.
|Gold Will Be Top Performer in 2012 – UBS Poll Of 8 Trillion USD Official Sector|
I admit I am a tad confused and slightly disorientated now. I cannot fathom a happy ending for the markets at this juncture. It is just too hard for me to understand. But I sense we are near an inflection point of sorts.
Perhaps 2012 is the end of the world. Maybe Nostradamus couldn’t understand it too. And I certainly do not blame him.