The Great Book of Fairy Tales

Pfäffikon SZ, Switzerland – The financial markets, which have been flooded with liquidity, have for a considerable time not concerned themselves with the fundamental health of the economy. The decoupling of the surging stocks continues to take shape. The recently published whimsical economical facts underline that picture. The markets have put all their faith in the central bankers, who are even considering opening the money tap even further. Meanwhile the smart money is looking for fools that believe the current consensus.

Amusing
In the US in particular there have been signs of a sideward trade pattern on the stock markets. In Europe investors are celebrating. No one seems to care about a possible correction and according to some, it’s farther away than ever. It is amusing to see how robots and other algorithmic trend followers attempt to set the market in an upward motion. The smart money tries to make use of the situation and finds in the robot a buyer with fairly empty pockets. The robot is a clown wearing a party nose. The number of serious investors on the buyer’s side of the market is decreasing.

Safe
In the bond market investors deem themselves safe because of the ECB’s buy-back programmes. The recent shifts in the bond market seem to be impressive percentagewise, but in real terms it does not mean much. It is more interesting to note that the actual liquidity is nowhere to be found. In my opinion this strengthened the recent movement in the bond market. It’s a development which has surely not gone unnoticed by the ECB. More important still would be the moment the Fed turns the ship that is the interest rates, around. For this would amount to an important trend reversal, which could persist for decades to come. Entire generations will have to deal with a financial landscape which is uncharted territory. But things have not gotten to that stage yet, not in the least given current developments.

Fairy Tales
When fundamentals such as industrial production, consumer spending, sales and profits no longer matter, then the ever-rising stock prices are in the hands of the central bankers. The current consensus is that central bankers will never let the stock prices drop. Those are figments of the imagination that belong in the great book of fairy tales.

It remains for me to wish you a good weekend.


Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.