Feeling sorry for Powell
February 6, 2018

Mint - Blain's Porridge Extra

11.30 AM

You have to feel sorry for new US Federal Reserve Head Jerome Powell starting his new job yesterday. Powell is going to find he has three jobs: Inflation, Jobs, and Managing Trump who might well think a falling stock market is a Fed Plot to discredit him. Does that increase the risk of a policy mistake?

Lots of interesting stuff going round this morning as the market tries to assess what's actually going on. Despite the spectacular success of this morning's UK inflation-linked bond issue (there's a clue of what people are scared of), the risks across all asset classes are going to stay high for a least a few more days. The shakeout continues. One scribbler source says he's worried portfolio managers will use the volatility to simply dump any position causing them MiFID II (markets in financial instruments directive II) concerns – on the basis no one is going to spot bad news on a bad news day.  We've being ultra-cautious, but we're seeing good bond flow.

It's becoming clear this crash isn't based on any one particular piece of news. It's as likely it was tipped into a sellathon by inflation expectations, the return of the Philips curve and wage inflation, rising and normalizing interest rates, rising bond yields as much as hubris on Trump's comments about his successes making stock markets rise.

This event is not about a correction or the amount of money that's been lost on levered inverse VIX (volatility index) plays. It's about the sudden, dramatic return of volatility catching the market unaware and triggering a massive VAR (value at risk) event. That's a lesson in complacency. The market is awash with stories – but we don't repeat rumours in the Porridge. As four months of gains are reversed in four days, the current VAR shock sees risk managers shoving traders aside – that seldom ends well.

The other side of the coin is cash has to go somewhere. We still reckon the improving global macro theme remains on track, thus risk assets like stocks and alternatives over bonds. That's our view – for now.

You can't help but wonder if this deepens into a full blown financial crisis in stocks and bonds, might it cause central banks to press the "Do Anything It Takes" button. Lower rates? Reopen the QE gunwales? Right back into the distortions of the last ten years and another nail in the forehead of market-driven economies. It's a possibility. After all the market loves the central banking put!

Watching the space..

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners





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Mint - Blain's Porridge Extra

11.30 AM

You have to feel sorry for new US Federal Reserve Head Jerome Powell starting his new job yesterday. Powell is going to find he has three jobs: Inflation, Jobs, and Managing Trump who might well think a falling stock market is a Fed Plot to discredit him. Does that increase the risk of a policy mistake?

Lots of interesting stuff going round this morning as the market tries to assess what's actually going on. Despite the spectacular success of this morning's UK inflation-linked bond issue (there's a clue of what people are scared of), the risks across all asset classes are going to stay high for a least a few more days. The shakeout continues. One scribbler source says he's worried portfolio managers will use the volatility to simply dump any position causing them MiFID II (markets in financial instruments directive II) concerns – on the basis no one is going to spot bad news on a bad news day.  We've being ultra-cautious, but we're seeing good bond flow.

It's becoming clear this crash isn't based on any one particular piece of news. It's as likely it was tipped into a sellathon by inflation expectations, the return of the Philips curve and wage inflation, rising and normalizing interest rates, rising bond yields as much as hubris on Trump's comments about his successes making stock markets rise.

This event is not about a correction or the amount of money that's been lost on levered inverse VIX (volatility index) plays. It's about the sudden, dramatic return of volatility catching the market unaware and triggering a massive VAR (value at risk) event. That's a lesson in complacency. The market is awash with stories – but we don't repeat rumours in the Porridge. As four months of gains are reversed in four days, the current VAR shock sees risk managers shoving traders aside – that seldom ends well.

The other side of the coin is cash has to go somewhere. We still reckon the improving global macro theme remains on track, thus risk assets like stocks and alternatives over bonds. That's our view – for now.

You can't help but wonder if this deepens into a full blown financial crisis in stocks and bonds, might it cause central banks to press the "Do Anything It Takes" button. Lower rates? Reopen the QE gunwales? Right back into the distortions of the last ten years and another nail in the forehead of market-driven economies. It's a possibility. After all the market loves the central banking put!

Watching the space..

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners



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