Equity markets are flying, emerging markets are up, bond yields are creeping ever so slightly higher, credit is doing just fine. Good news for the global financial markets. I would have thought that, given what has been promised them in the last 24-hours, they would have been doing better. It’s unclear if this is a sign of maturity and prudent restraint or something we should be wary of. Asset prices like a good bubble. Central banks and governments aren’t exactly against them under current circumstances. And while financial instruments aren’t doing anything particularly wrong, they also aren’t running away. Which struck me as somewhat odd looking at the screens.
It feels piggish to deride the bounce. The S&P 500 will be well above its 200-day moving average, the Russell 2000 futures have bounced nicely, bond yields remain in the sewer but looking like they won’t be testing recent lows today and Fed Chairman Jerome Powell will be front and center in the Senate today to assure us he is on the case. The government is talking up a new fiscal spending plan. Infrastructure, no less.
All of this is good. But some days, you just don’t feel the love.
Perhaps it’s the new Fed program to buy individual corporate notes that just doesn’t sit well. It just isn’t what they are meant to be doing. Comments that this was best left to the Fed because they have a reputation for veracity and even-handedness seems bothersome. Such a tacit admission that other branches of government can’t be fully trusted. The Bank shouldn’t be put in this position. It may help the credit market in the short-term and may even help the economy for now. But it’s a long-term threat to their reputation and opens them up to potential claims of favoritism. And, frankly, questions about their independence. Related: Saudi Arabia Is Fighting A War On Two Fronts
Remember all of the discussion about treating the economy as a whole? It’s a slippery slope from here to equities. They wouldn’t be the first central bank to head down this path. Picking winners and losers. Appeasing politicians. And a permanent presence in the markets. It smacks of desperation. Not everything that is market-friendly, even in bad times, is a good idea. The only thing harder for any government program than implementing it, is stopping it.
Meanwhile, I keep hating the euro and am amazed that it refuses to go down. Its resiliency is impressive. Maybe it sits on 1.13 forever. But it may need to take another look above 1.14 just to see what’s really up there. Analysts insist on telling me the European economy is coming back. That seems overly optimistic, but who knows? In any case, it’s probably worth just giving the dollar-up trade a rest. At the very least, there are probably better uses of your energy. We can always revisit when it gets going one way or the other.
Whatever happens, take it as gospel that all central banks are in this to win it and won’t let up. Liquidity and low rates are here for as far as the eye can see. There isn’t, nor should there be, a single hawk to be heard.
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