It was to be expected that central bank intervention would not be innocuous. We warned a little more than a year ago and its effects are already blowing up in some people's faces. If to this massive intervention never seen before we add a couple of other ingredients (Madonna, Madonna, just a couple...) such as OPEC's plot to push down the price of oil, the conflict in Ukraine or the radicalisation of the alleged Islamic State in the Middle East (which affects even Paris itself), the amplification of the side effects of central bank intervention can and will be uncontrollable.
Today we are already witnessing brutal price movements, which do not correspond at all to a healthy financial system, nor to corrections or adjustments of excesses, but rather to the delusions of a system that has been in place for years. frankeinsteinian capable of anything. Let us look at some very significant examples in recent weeks which, however, have paradoxically had rather localised devastating effects until today:
Fall in oil prices in the last quarter:
Rise of the US dollar and collapse of the rouble
The Norwegian krone (NOK) has also plummeted
The Swiss National Bank’s capitulation and the resulting meteoric rise of the CHF against the EUR
The Shanghai Stock Exchange fell by more than 71 points in a single day following the government’s attempt to ease pressure on China’s credit bubble.
We might have seen a few more in recent months, but we’ll really start to feel the full force of them in the coming months. Let’s not forget that we’re already facing the announcement of Draghi’s imminent QE and the elections in Greece. Two ticking time bombs that will only add fuel to the fire of the system. In short, these are side effects that are beginning to manifest themselves here and there, resulting from the combination of the distortion created by central banks, geopolitical conflicts and the currency war, all against the backdrop of an unprecedented recession in the developed world. The most perverse aspect is that central banks lie with impunity in their quest for credibility. The role of central bank governor is like a Machiavellian hybrid, a cross between a Nobel laureate in economics and a politician on the campaign trail. You can read about it at this article by Kaletsky It’s a year old, but still painfully relevant. And worst of all, the economy is in their hands more than ever.
The question any investor should ask themselves is whether the approach to allocating their assets and generating returns in this minefield can be the same as it always has been, the same as in previous years. The answer is NO. As we discussed in «Generating income in a scenario of expensive bonds and rising rates«Today, more than ever, it is essential to seek returns that are insulated from the distortions caused by central banks and from energy and geopolitical manoeuvring. Investors must seek returns far removed from the extremely high volatility we are set to experience in assets traditionally as stable as fixed income itself. The perfect storm may already be upon us, even if it hasn’t started to pour down yet, and anyone who doesn’t believe this should take another look at the figures in the charts above. In these times, a strategy that generates returns regardless of financial upheavals is a precious treasure.
Source Trading Floor