“Disconnects” Everywhere…

Authored by Richard Breslow via Bloomberg,

For years the disconnect between financial market performance and what’s happening in the “real” world has been a much discussed topic. At first we were confused by it. Then amazed. Periodically incensed. And then we came to just accept it as the way the system is set up and things are.

There isn’t much debate any longer as to why it is the case. Nor that there is anything we are going to do to change it. But, at least we, almost, all agree the phenomenon exists and have no trouble publicly saying so. We may not all like it, yet there is some comfort to be taken from everyone recognizing it as a fact.

Maybe it’s because so many of our ills are new. Perhaps it is because there are so many of them. But it seems we are going through a period where we refuse to agree on the most fundamental of issues. There’s an extreme level of divisiveness and it is turning the world, not to mention the financial markets, into a casino where no one really has a handle of the odds of either the game or what is ultimately at stake.

We hear that everything economic rides on the path of the pandemic from no less than the Chairman of the Federal Reserve Jerome Powell. Eminent scientists remain fearful and are increasing their calls for precautions. One Fed president has speculated about locking us all down again to finally get a handle on the spread of the disease. Put the economy back to sleep to save it.

Other people are insisting we open up faster and get things going. That time will cure our problems. A vaccine is rapidly going to be available. That enough is enough. We can’t afford to wait. Open the schools, keep them shut. Work from home indefinitely or back to work, already. Masks, visors and gloves versus party time at the beaches. Take out only or tattoo parlors. Those are some big bid/offer spreads.

And these sorts of disconnects are everywhere. Social unrest. Perhaps starting sports again will calm the people down. The economy is facing depression-like unemployment and relief benefits are at risk. Manufacturing is coming back strong and we are setting up for a boom. The world is the enemy. We all need to pull together. The stock market is going to new highs. Happy days. Bond yields are going to keep plummeting. Official rates could eventually go below zero. Batten down the hatches. As long as the number of bankruptcies remains low, we’ll be fine. Brace for a slew of companies going under.

The world, and markets, are meant to have disagreements and varying opinions. That’s often healthy. It can lead to progress. But this is too much to be constructive for much of anything. And, apologies for bringing really important issues back to trading, it’s not good for our financial health. We used to trade on small differences. A beat that some would say wasn’t as good as the headline. And the like. Now everything allegedly has huge significance and will carry on to an extreme. You don’t just sell some dollars anymore, you prepare for the end of it being the world’s reserve currency. Every popular position is meant to represent a matter of global significance. And they get angry with you, if you don’t see it. Sometimes a trade is just a cigar.

Overnight, one of the big movers was the Hang Seng Index. It was up nicely. The number of explanations for why have been as long as your arm. Real estate, global tensions, mainland investment flows, virus fears ebbing, etc. Frankly, I’m embarrassed to admit, the ones I liked best, as a breath of fresh air, anyway, were, “It had been down three days in a row, so they bought it”. “I told you it was due for a bounce”. And the winner was, “Analysts saw no apparent reason for the surge”. I would usually rail against such an explanation as entirely inadequate. But it was curiously refreshing. And, sometimes, it’s just the reality.

Opinions differ. No problem with that. But we need to narrow the gap or making sense of things may remain outside of our grasp.

Reality does, in fact, lie somewhere in the middle.