Hogs bite hand that feeds them
WOW, what a manic-depressive week. It would be amusing to sit back and watch the market’s wild mood swings if it wasn’t for the less funny fact that so much of our own money is at stake.
Fortunately, the US Federal Reserve’s threat to squeeze money supply was overtaken by a far more important priority: that fund managers ramp the markets up before the second quarter ended on Friday to make their portfolios look sweeter. This they did.
Their behaviour may appear more psychopathic than bipolar, but that is the way of the world right now.
This week has brought forth some fabulous sound bites. Take the Fed member who likened bond traders to “feral hogs” for selling the very US treasuries the central bank has been buying hand over fist in its quantitative-easing programme. How dare the private sector take market dynamics into its own hands!
And the other Fed governor (trying to soften his chairman’s belligerent words about turning off the dollar taps), who said the monetary authority “didn’t want to go from Wild Turkey to cold turkey overnight”. That’s cool, guv, but it’s hard to put toothpaste back in the tube.
Or, as zerohedge.com put it: it is easy to throw an apple up, but difficult to keep it from falling. The website also said you barely notice one person leaving a crowded cinema. When there is a mass exit, you panic. And so it was with Ben Bernanke’s inelegant pricking of the “hope bubble” last week. What did he expect — that there would be an orderly line of sellers gradually taking their leave from
The other Fed governor said they didn’t want to go from Wild Turkey to cold turkey overnight
the very market his easy money created?
No. What we got was a “taper tantrum”, a term freely bandied about in RMB’s excellent daily newsletter all week.
But of late there seems to be a spreading opinion that, given the imperative for Big Money to maintain a glowing investment portfolio, there will not be a wholesale collapse in any single asset class.
Yes, gold and emerging markets were badly hit in the first wave of silly-season selling, but they will become cheap, and they will once again be bought.
The broader theme among large American investors, perhaps, is portfolio rebalancing: a swivel out of fixed-interest “safe havens” and into the S&P 500.
Implicit in Bernanke’s comments was that he expected better growth and higher employment some time in the future, despite scant present proof. Many money managers took his words as a prompt to buy the promise, feeble as it may be, and sell the fact. The herd then followed suit.
It doesn’t take long to set a new trend. The website ibankcoin.com, in the form of its feral hog of a proprietor and chief blogger The Fly, reckons “the great money clawback” favours three US equity sectors: housing, tech and finance.
On Thursday, The Fly said he had taken “a monster position” in Goldman Sachs. A day later he added: “If GS doesn’t hit $160 within two weeks, I will cut my penis off.”
That’s the pioneering spirit, fella!