Ebb & Flow: Tidal Forces in Markets

There’s a pattern & predictability to tides that make them easy to forecast. But, on very long timescales, that doesn’t mean they are constant by any measure. At a celestial level, the amount of force produced depends on the mass of the objects involved, the distance, the eccentricity of the orbits, and the radius of the bodies – for starters. The push & pull that’s observed in financial markets is analogous: different assets exhibit similar ebb & flow as correlations oscillate.

Drug Addiction & The Stock-Bond Feedback Loop

Over the past month, the bond market has seesawed between paroxysmal rallies & emetic sell-offs. In between, however, an overall placid composure has taken hold: arguably due less to complacence & more to trauma as investors prepare for the next bout of volatility. While there’s little disagreement about the role that policymakers have played, what’s fascinating is the degree to which so much of the recovery in risk assets is due solely to the promise of more imminent easing, as opposed to any improving fundamental picture. It’s an addiction – and the time for intervention is long gone.

From the Vasty Deep

Fiat policy is successful not by virtue of the exhortation, but by manifestation of that which has been prescribed. It’s one thing to say you’re easing, quite another to convince markets of it.

On the threshold now of the first rate cut by the Federal Reserve since 2008, this question has to be even more vexing for those about to do the cutting. At this point, is a 25bp cut alone enough to “ease”? The simple answer is no.

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