BLOG

"We won’t ever solve the world’s problems if dead-cat bounces keep being hailed as that obvious dip to buy," writes former fund manager and FX trader Richard Breslow, and this morning's panic-bid bounce in tech stocks is a perfect anecdote for that...

One quick glimpse at the Nasdaq's manic rise and it's evident, as Breslow notes, that someone (or something), seriously bel;ieves that "why would the bounces happen if solutions to our woes aren’t in hand?"

As Breslow notes, wasn't it bad enough that for a decade we measured all economic success based on the level of equity prices. Main Street to follow. That may no longer be the best campaign line, because equity markets look awfully soggy, right across the board. And that’s a global observation.

It’s time to read the actual news rather than the intraday stock charts.

Via Bloomberg,

Secretary of State Mike Pompeo had a visit to China that was, at best, embarrassing. Everyone is wondering about next week’s currency manipulation report from the U.S. Treasury. Europe’s trajectory is worrisome. The Middle East isn’t getting any better. I’ll stop there.

We spend much time debating the safe havens du jour. The dollar has emerged as one. And don’t count out the Swiss franc and Japanese yen. What hasn’t been working is Treasuries and bunds, and that merits attention.

Ten-year Treasury yields made a new cycle high just this morning. It means you have safety valves contributing to market stresses. Take a gander at the MSCI Emerging Market Index and it points to the fact that there is something much bigger going on.

The IMF is busy cutting growth forecasts and central banks realize they must have higher rates to prepare for the next recession.

Yet, in the course of today, I’ve been assured that markets are relieved that Chinese equities have regained their composure. And the government has things under control. After a 3.5% drop yesterday, a minuscule bounce today would suggest that the jury may still be out. But, as is inevitably the case, the most optimistic commentary was written when the Shanghai Composite was up 0.5%, and if you extrapolated those gains, this thing could go to the moon.

The same happened with Italy. The MIB and BTP markets opened higher. Hurrah, cooler technocratic heads will prevail. Calm is being restored through the back channels. Ignore the people who think they are in charge. What debt death spiral? If it weren’t for the banks in the stock index, things would be looking much calmer. Take out a couple of other stocks that have been getting eviscerated and things would be looking positively sanguine. We have to stop thinking like this.

We are all trying to suss out the big trades for the rest of the year. Perhaps the best prescription for being in a position to take advantage of them, when they eventually appear, is to first, do no harm. It’s hard not to feel the calendar breathing down our necks, but patience may be a virtue equally as important as clever analysis.