Spring has sprung violently in all risk markets, from junk bonds to sovereign credits, from financial to alternative energy stocks, from copper and crude oil to ship charter rates. In a word, from risk revulsion and panic selling to risk appetite and panic buying, all in the space of a few months. My, my.. what on Earth is going on?
As best as I can gauge it, the "logic" of traders in dealing rooms across the globe is as follows:
- "They" are not going to let the system collapse.
- "They" want asset prices to move higher.
- "They" will do whatever it takes to make it so.
The Greenspan put is now the Bernanke put and is deemed to have been exercised with a vengeance to the tune of several trillion dollars. Furthermore, such "put" operations have been expanded to include the enthusiastic support, or at least the tacit acquiescence, of every major politician and policy maker in the world.Within two months the traders' motto has changed from: Sell everything before it's too late to: Buy everything before it's too late. In my 25 years of active involvement in markets I have never seen such a perfect and absolute reversal of psychology in such a short time. Economists can argue about the shape of the economic recovery until the cows come home, but for traders it's V all the way, baby..
There is no fundamental rhyme or reason necessary; after decades of deeply imbibing from the free-market neo-liberal chalice, adherents religiously believe the market creates its own reality. If stocks are up, then the economy must be getting better and thus.. buy before it's too late. Traders are looking over their shoulder to their mates next screen over and mumble determinedly: "I'll be damned if I'm left behind."
And that, ladies and gentlemen, is a copycat speculator, trader, ivestor, whatever..
Trouble is.. this is not the 1990s or even the early 2000s. The game has changed and there is nothing left to goose; technology, real estate, commodities - they have all been played out. All we have left now is a huge pile of debt rapidly going to stink. That's NOT an asset, folks..
Here's what I think: this copycat bounce is going to quickly turn into a deadcat bounce.