By former FX trader and current Bloomberg commentator Richard Breslow

The Evil One

An enduring curse of this financial crisis is the inability of markets to disengage from the clutches of the correlation of one. We see it ad seriatim, often day to day: everything is wonderful, all hail the central bank (Friday); the world is crashing, these empty suits are running us over the cliff (Tuesday).

Having gone on long enough, this phenomenon has turned traders into inveterate cynics who know the price of everything, and the value of nothing.

Markets function effectively only when relative value among assets has some measure of reality. Discounting future returns in a world of zero and negative interest rates is a Sisyphean task in the theater of the absurd. In today’s world, we reduce everything to buy or sell the lot.

You hear the term “safe haven” constantly. It is meaningless in a negative-rate induced carry trade world. No one is buying safety in JPY on bad days. They are busy getting blown out of the high risk stuff they funded with minus 0.1% rates

Currency wars can be nasty and don’t always have a winner. When they are waged with increasingly negative rates, it becomes the nuclear option.

Central banks embracing uncontrollable volatility and the evil of one.

When “forecasters” tell you oil is going to go up or down by 50% this year, they are not just trying to hit a home run, they will be able to dine out on for the next five years. Nor do they have a better understanding of supply and demand than everyone else. They don’t and don’t have to. Hate the world and it’s collapsing. Feeling less dyspeptic and it’s due for a rally

Of course with oil trading at 70% implied volatility on a $30/bbl handle, making bold predictions of huge moves expressed in percentages is more sleight of hand than probative

Every time the dust threatens to settle, assets try to find their fair value and everyone panics. Central banks respond with the sentimental encouragement that we see an absurd value in everything and ignore the market price of any single thing. Wild(e)



