Stocks are bouncing (albeit modestly), and news media is awash with an interesting mix of administration officials and asset-gatherers desperately talking down yesterday’s bloodbath as a ‘storm in a teacup’ – even if some are gloating that this occurred under Trump.
But as the dead-cat bounce fades, former fund manager Richard Breslow reminds us of what to expect:
“I hate days like today. It will be spent arguing why equities got rapped. Who or what is to blame? Or no one and nothing.”
As Breslow notes, Treasury Secretary Stephen Mnuchin has already told us to move along, it’s just a well-anticipated correction, nothing to see here and Larry Kudlow said “the fundamentals are strong,” adding that you certainly can’t blame our unceasing vitriolic assault on global trade.
But, as Breslow sums up perfectly: “there will be no lessons learned.”
Everyone gets bent out of shape when U.S. markets give back some of their gains. The fact that global equities, in developed as well as emerging market countries, have been taking it in the neck for weeks, is seen as an object lesson for their past sins.
We are supposed to have moved on from constructing our world view through the prism of where the S&P 500 stands vis-a-vis its 200-day moving average. But ingrained habits are hard to break.
We know China’s struggling with a slowing economy at the same time they are dealing with needed structural reforms, which make the former more challenging. But we threaten them with being labeled as a currency manipulator.
When the German Economy Ministry this morning slashed their growth forecasts, most prominently citing trade restrictions and, secondarily, a “weaker external environment” it’s taken as whinging. Emerging markets are getting caned? They should have realized that quantitative easing was meant for us, not them. That they should have settled for trickle down benefits not used it to borrow dollars at artificially suppressed rates.
The IMF, at their annual meeting in Bali this week, issued warnings about policies that could damage the global economic environment, and it’s taken as the IMF just being the IMF. And did anyone in Washington notice that, on a world stage, Managing Director Christine Lagarde felt compelled to say, “I wouldn’t associate Jay Powell with craziness”?
If the U.S. markets rebound today, we’ll hear a lot of noise about I told you so and was never really worried. People will be checking the office pool to see who won the guess the closest to the bottom challenge. And while markets not melting down is, obviously, a good thing, it’s a shame that dodging a bullet won’t lead to greater contemplation about the bigger picture.
The Fed has been doing the right thing. Belatedly, to be sure. But just like other countries trying to manage conflicting imperatives, the U.S. can’t normalize rates and pursue hostile policies and rhetoric against friend and foe alike. Markets are so numb that they didn’t even notice when the U.S. threatened to block the U.K. from the global procurement pact. It would be a shame if the only compromise to the current path has to be made by the FOMC.
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