May 20, 2014
Yesterday we showed what happens when the Fed takes central-planning a bit too far and leads to a market in which even Fed members say is too manipulated.
Today, it’s Deutsche Bank’s turn to voice a lament on the topic of uber-manipulated, rigged markets. From Jim Reid:
Perhaps the Fed and other central banks are controlling the market too much these days with their guidance. In the old days central banks used to like to create an element of surprise to ensure that markets didn’t become complacent. With the crisis fresh in people’s minds, with the stock of debt still huge and with the recovery still so uncertain they feel they cannot risk creating too much uncertainty at the moment. The risk to this strategy is clearly that bubbles can build with so much central bank visibility and also that if they do have to change course suddenly it could create more problems due to the surprise factor in markets positioned for stability. Anyway for now low vol rules.
The irony, of course, is that by now “people” know very well that the market crashes when the Fed manipulates it “too much” or as the case is now – is the only price setter – which is why the more the Fed determines what the closing price of the S&P is on any given day, the less actual market participants remain, until finally one block of spoos ends up moving the S&P by basis points, and why market volumes are as pathetic as they are.
In the meantime, central banks can trade with each other: everyone else is happy to sit back, consume popcorn and watch as artificially depressed vol plunges to new all time lows only to blow up as it did last time when the central banks inevitably lose control as they always do. Rinse. Repeat.
This article was posted: Tuesday, May 20, 2014 at 10:58 am