Bill Holter’s Commentary
WOW, B of A now sounds like a conspiracy theorist! Did fake markets just now happen or were we tin foil hat whackos correct all along? It’s OK, you know the answer…
“Central Banks Have Created A Fake Market”: BofA Asks Why Anyone Would Expect Stocks To Trade Rationally
May 22, 2020
It’s no longer fun to be a Wall Street macro strategist.
On one hand you have to divine the future for risk assets, looking at corporate and economic fundamentals and data, and recommend “big picture” trades based on your assessment of corporate profits and interest rates which have traditionally been the two key drivers to any macro asset allocation decision. On the other, none of that matters in a time of central planning when central banks have taken over price discovery, making your job meaningless as asset prices are now a direct consequence of nothing but central bank liquidity and explicit asset backstops. As Deutsche Bank’s Stuart Sparks put it best, “These are administered markets and market outcomes will be dictated by the policy goals of the Fed and Treasury, and the tools they select to implement policy”
Not only is it not fun, there is a sense of dejected resignation (perhaps as market experts see their careers become obsolete), one which was especially palpable when reading the latest Flow Show report from BofA’s Chief Investment Strategist Michael Hartnett who writes that these are “fake markets” in which “government and corporate bond prices have been fixed by central banks…why would anyone expect stocks to price rationally?”
To be sure there is no rationality in a world in which over the past 8 weeks there has been a 38 million rise in US unemployment coupled with a $10 trillion forecast loss in global GDP in 2020/21; this however has been offset by $4 trillion of asset purchases by central banks resulting in a $15 trillion surge in global equity market cap.