On February 9th, the Shanghai Composite traded as low as 3,063, a 14.6% decline from trading highs just nine sessions earlier.
The greatest flaw in central banker doctrine/strategy was to believe that after intervening temporarily with reflationary measures the system would stabilize and gravitate right back to normal operations. Central bankers reflated a deeply unsound financial structure, only exacerbating flaws and compounding contemporary finance’s vulnerabilities.
Only very rarely has a trade gone from being so good to being so bad so quickly. Among the most profitable trades during the bull market has been to short volatility, essentially betting the market would get calmer and stay calm.
Over-liquefied financial markets have enjoyed quite a prolonged celebration.
The U.S. ran a $71.6 billion Goods Trade Deficit in December, the largest goods deficit since July 2008
November 15 – Bloomberg (Nishant Kumar and Suzy Waite): “Hedge-fund manager David Einhorn said the problems that caused the global financial crisis a decade ago still haven’t been resolved.
It’s been awhile since I’ve used this terminology. But global markets this week recalled the old “Bubble in Search of a Pin.
Of the diverse strains of inflation, asset inflation is by far the most dangerous.
Amazon, Google, Microsoft, Intel and Draghi all handily beat expectations. Booming technology earnings confirm the degree to which Bubble Dynamics have become entrenched within the real economy. Draghi confirms that central bankers remain petrified by the thought of piercing Bubbles.
The week left me with an uneasy feeling.