“BTFD”, “Goldilocks”, “Climbing a wall of worry”, “Powell Put”, “Trump Put”, “It’s different this time.”
The excuses to buy stocks – no matter what headline tape bomb explodes – grow longer and more desperate as asset-gatherers and commission-takers know the end is nigh (and judging by the level of insider-selling, so do C-level execs). Of course, to the onlookers, the record-breaking stock markets provide just the ‘price’ evidence that everything must be awesome (right?), but as former fund manager and FX trader Richard Breslow points out, “there’s danger in knowing price, but not value.”
The most accurate thing anyone has said today is also the scariest. Not because it isn’t true. There is no shortage of examples to prove it. Italian assets are getting hammered on budget-deficit-busting news. The European Union won’t like it. The rating companies may take exception. Our own story described it as dealing a “body blow” to the establishment. But Deputy Premier Matteo Salvini’s reaction was, “Markets will come to terms” with it. And that’s the problem. They most likely will.
But every time “investors,” to use the term loosely, limit their response to selling some futures before deciding to move on and pick-up some carry in the cash market, the ante will continue to be raised at the next episode.
Traders are meant to be regulators on behavior, economic as well as political, but have utterly ceded that function.
This is nothing new, but it’s getting worse. And more dangerous. As I’ve been watching the BTP and MIB markets trade this morning at each dead-cat bounce I’m told things are stabilizing. There’s no contagion. Buyers are looking for value. That markets are orderly.
And that’s good, but when I look again a bit later, prices are lower. I’m absolutely not advocating for any sort of mayhem. Just that we recognize things for what they are rather than check if the central bank is around to be front-run.
On the same day we are featuring an editorial worrying over the potential implications to the stability of Europe of the Italian government actually intending to deliver on their campaign promises, it took almost all night for EUR/CHF to finally take notice. And this in a cross that yesterday traded at one-month highs on fresh buying following multiple buy recommendations based on increasing political stability in… you guessed it: Italy.
I understand that surprises happen. And hindsight isn’t fair to club someone over the head with. But sometimes it is.
Just yesterday demand at the 10-year BTP auction was the highest since last May. Unfortunately for those awarded an allocation, yields today are a whole lot higher. To say the least.
That was putting an inexplicable amount of faith that the finance minister had his two deputy premiers well under control. On very little evidence. Other than a wishful assumption that the even hard-line populists always bow to market-friendly necessities. We really have lost our way.
Incidentally, Italian bank stocks have just been halted. And the MIB was down at one point the best part of 4%. One of the EUR/CHF advocates is writing about risks to the supply of capital should there be a downgrade to junk. Sometimes, traders need to be the adults in the room.