Time for some conspiratorial reflections
As the year draws to a close its of course a natural time to reflect on what’s passed and to conspire about what is to come. In keeping with this theme and adorning my smoking jacket, slippers, sat by a log fire and with dog at my feet I shall share with you some of my more random musings if you would be so kind as to indulge me.
Starting with of course the most obvious and given the proximity to the event tonight… Tapering is not tightening.
Well of course it’s not tightening, but that’s not how the market sees it, and ultimately that’s all that matters isn’t it? So much has been made about the inevitable taper that it now beggars belief as to what the market may actually do when it is finally announced. In either the most brilliant piece of monetary gamesmanship or simple bait and switch ever perpetuated by a central bank the entire market was led up the garden path in September awaiting the reduction of monthly purchases and subsequently we all know what happened. This then opened the door for a market in love with a good piece of rumour mill action to a play a game of “if not now, then when” and that has brought us to this evening where according to Pimco and a good chunk of the remainder of the market we stand a 60/40% chance in favour of a move.
For what it’s worth, I personally don’t think we see a firm move tonight and not in fact until Yellen has had a chance to warm her chair, and if we’re to believe the data coming out of the US, the economic picture has continued to further improve. Furthermore, we’ll be (hopefully) well clear of the upcoming debt debacle in the US, and yes I know they’ve struck a “deal” of sorts already, but as we all know too well, it aint done, till it’s done.
Forward Guidance – The unnecessary spoon feeding of an already retarded market.
It became ever so popular amongst central banks of the developed world this year to institute a policy of forward guidance. Taking a leaf out of the FED’s book the ECB, BoE and even the BoJ to a degree, joined the happy throng and attempted to tell the market where things were going and how they as the central bank were going to tackle the issue when it finally arose. The net result however, was twofold (in my mind), firstly it cemented the notion that these guys have become nothing more than intraday penny stock traders and subsequently made a mockery of the basis of market mechanics (did someone say price discovery) and secondly, proved convincingly yet again how poor they themselves were at forecasting. In doing so they’ve managed to shut the market down to its bare bones, no one wants to get involved unless they’ve been freshly educated by an overpriced “learn to trade” guru and thus liquidity and general price movements have become so dangerously erratic.
Did we really need this attempt at “fixing” the market? Simply put, NO!
And yet here we are having to live and deal with it.
Does the above make you wonder why so much money (in the shape of assets under management) has left the FX market this year, frankly it shouldn’t.
Keep an eye on this space in the coming days for more thoughts and I promise (well sort of) no more central bank bashing…