Monkey Madness : The Death of A Salesman And Central Banks

All good if you had Not Read a single strategy piece for 2016 because Goldman Sachs has just abandoned 5 out of 6 of their top 2016 top trade picks, 5 weeks into the new year. And my Dear Friend is right as usual …”My dear friend, who is now back in a trading role had cautioned me against reading too many of those mind-numbing 2016 reports. Want to tell us what will happen in the next 12 months ? How about just getting through the next 12 hours ?”

Is it possible to predict anything without it coming back to bite you in the days ahead and as we had suggested, a selfie time is best right now, for all those too afraid to open up those portfolio statements, to “take out and dust those selfie sticks, all of you. And let’s see those photos in 6 months time.”

Because does anyone remember the good old days ? When bad news was good news ? With more QE to look forward to ? Rally like there is no tomorrow ?

How did everything turn bad with all the extra QE and negative rates that we are seeing right now ?  Even better than anything we had imagined ? Or did we just have had too much of a good thing ?

Markets are rejecting the central banks led currency war outright by taking the Japanese yen 2% higher right after the Bank of Japan did the unprecedented negative rate thingy, a sharp blow to BoJ Governor Kuroda’s ego, no doubt.

Maybe we are just living through The Death of A Salesman … or Central Banker, who cares ?

The central banker’s role is that of a cheer leader and the economic pilot (salesman ? circus master ?) and they like to stick to their way of doing things as they know it. The general rule of thumb has been the QE way and it does not take a 5th grader to find out that the biggest beneficiaries in the QE world has been none other than the largest holders of those negative yielding bonds out there, the Masters of the QE Universe themselves, the FED, ECB and BoJ who own most of of the most 7 trillion worth of negative bonds out there, leaving the other 10,000 distressed bonds out in the cold, even affecting the un-distressed world of IG (investment grade) names.

QE + QT = QF ?Chart of credit spreads from last week which has become worse with the HY spread at 8.17% (just shy of previous peak), 1.84% for IG and 0.19% for developed sovereigns.

That cannot be more counter intuitive for all the intents and purposes of QE and negative rates that we can assume to be towards the economy’s well being, growth, healthy inflation and healthy lending.

Instead, we are now living through a Mother of Market Panics – stocks down, corporate bonds down, credit spread widening, languishing commodities, lending paralysis and a 7 trillion dollar pile of negative yielding sovereign debt.

Safe for gold which is up 11.5% for the year so far, it does remind us of Arthur Miller’s Death of A Salesman and the contradictions besetting the family of the protagonist, Willy Loman (Dustin Hoffman in the film), who was unable to accept change in his life and society, choosing death as his ultimatum.

A salesman/circus master/central banker cannot be successful forever, as we have seen in the past with Greenspan and gang, and if they chose to construct a fantasy world for themselves, to distort reality because markets will not behave as they expect, we end up with Governor Kuroda, for one, whom only the Prime Minister of Japan believes in right now.


Monkey Madness : The Death of A Salesman And Central Banks 1

Yellen will deliver her testimony in a few hours and we shall see if another salesman/woman falls in the “monkey madness” that we are living in because the expectation is for a “hike-cut-cut-QE4”. For wont of a little change in tactics, if it is not too late…..