Ever since 2009, when we first showed how broken the capital markets are first at the micro level, thanks to the pervasive spread of parasitic, frontrunning algos, and then at the macro, as a result of constant, artificial central bank intervention and levitation, we have advised readers that the best option is to simply avoid rigged, manipulated markets altogether. Now, 7 years later, the world’s richest people agree.
Remember when we warned virtually every single day for the past 7 years that constant central bank and HFTs manipulation will lead to a market so broken nobody will have any faith in price discovery or asset valuation until everything collapses and is rebuilt from scratch? Well, we are delighted to announce that this is now conventional wisdom, and as a result every so-called “prominent investor” is now resistant to putting on fresh positions and expected asset prices to head downward, according to the WSJ.
In short, they say, the only winning move is not to play the game.
It’s not just that: according to WSJ reporting from the just concluded symposium of billionaires, prominent investors and other hypocrites in Davos, the consensus is that “the world’s central banks can’t save us anymore.”
The next WSJ sentence is absolutely epic: “Their mood here was irritated, bordering on affronted, with what they say has been central-bank intervention that has gone on too long.”
Oh yeah, they had no problem with central bank intervention for 1, 2, 3, 4, 5, or even 6 consecutive years… but seven? Now that’s just absurd!
The WSJ goes on to vindicate all so-called tinfoil fringe websites by admitting that “from this anecdotal sampling, at least, that has created growing distortions in nearly all asset prices—from stocks to bonds to real estate.”
Great job central bankers and other central planners: the one thing you just had to save at any cost, the market, pardon the “market”, even if it meant crushing the middle class, is no longer credible – not even to the smartest people in the room.
“The trade now is to hold as much cash as possible,” said Nikhil Srinivasan, chief investment officer for Generali, a European insurer with $480 billion in assets. “Equity markets could go down 15% to 20%.“
Or much more: after all the S&P is only in the vicinity of 1900 instead of 666 thanks to 7 years of central bank intervention. Pull the rug, and you get a 70% collapse.
Srinivasan said the central banks in the U.S. and Europe have done all that is possible, bringing rates to historic lows, and in Europe weakening the Euro to help sustain exports. Markets need to “stop expecting miracles,” he said, “now it’s time for the fiscal side to do its job.”
Actually, all central banks have done is delay mean reversion by injection trillions in liquidity which not only did not end up in the economy where it was not requested due to a complete collapse in demand, but simply inflated asset prices to record levels. Now even the wealthiest admit that the day of reckoning is coming.
The sentiment was the same for Axel Weber, the chairman of UBS AG. He said in a panel at Davos that: “There may be no limit to what the ECB is willing to do but there is a very clear limit to what QE can and will achieve,” he said, referring to the European Central Bank. “The problem is that monetary policy has largely run its course.”
Which is funny considering the only reason for the market rebound of the past two days was promises and hopes of more stimulus. Monetary policy may have “run its course” but the same billionaires will be delighted to get a few extra final hits before it all comes crashing down.
Added one other CEO of a major global financial firm: “The sickness is not inflation, it’s the mispricing of assets.”
The realization that Western economies will be growing slowly—and there was little that the central banks may do to aid—put financial executives here in something of a stupor.
The Netherlands, for instance, is experiencing negative interest rates. “We have limited opportunities to lend on the other side” of customer deposits because of those negative yields, said Ralph Hamers, the chairman of Dutch bank ING NV. “The only thing we can do is extend credit we would normally not do, and that leads to an accident waiting to happen.”
For Mr. Hamers and others, a shift in sentiment seemed to be taking hold. Annual growth of the old order—3% to 4% for the U.S. and other Western economies, is far away. Absent structural changes led by governments, there was little reason to be cheered.
One person who has also been warning about this terminal outcome for years is Elliott Management chief Paul Singer who said that “if central banks double down on their policies of QE, ZIRP and NIRP, it could cause a loss of confidence in central bankers, paper money in general, or one or more currencies, and lead to a collapse in bonds and stock prices.”
He is, of course, right, and incidentally this “thought scenario” is precisely what will happen because as we have repeatedly said, not a single economy or fiat system in the history of the world has disintegrated from deflation: governments and their central bank owners will always find a way to reflate, even if it means dropping money out of helicopters, even if it means destroying a reserve currency. And, as Venezuela most recently found out the very hard way, in the end, only hard assets remain – assets such as gold, which have preserved their value across the centuries.
As for these “prominent investors” who were anything but and merely rode the central bank wave for over half a decade, the fun is over. For him, “we call it the new abnormal and we better get used to it.”
What a coincidence that even the world’s richest are suddenly using terms first coined on this website all the way back in 2010, almost as if we were right from day one.
Now, anyone interested in a nice game of chess?