Two brief days of hiatus from the bond bloodbath are over as following Yellen’s testimony, 30Y yields have raced higher once again, breaking above 3.00%. Interestingly, EM bonds are having a big week even as DM bonds suffer…
As Bloomberg’s Mark Cudmore warns “don’t fight the Trump tidal wave”…
Trying to fight these market moves is like trying to stand your ground against a tsunami. Your line in the sand is arbitrary, you’ve nothing reliable to cling to, and even if you survive, the market will move on around you.
It’s so much easier to be carried along with the flow, and that’s what most investors will do, whether they want to or not. That way, even after the market recedes back to sustainable levels, you’ve hopefully been carried to some profitable higher ground.
Trump’s election has been a seismic event for markets. There’s a common, and valid, refrain that recent moves are excessive, given that Trump won’t take power for another two months and his exact policies are unknown.
Using that logic to defend your market positions is about as useful as ignoring that oncoming tsunami based on the knowledge that the waves don’t normally cover the beach.
There’s been a genuine shift in the macro environment. Assets may be reacting “too” rapidly and some sort of pause or pullback would be healthy. But it’s dangerously arbitrary to decide exactly where financial assets should ultimately trade in the wake of such a large macro catalyst.
Fund-manager cash levels were at record highs pre-election. It’s probable that a good portion of that money needs to be put to work before year-end. Survival bias ensures that most fund managers will go with the flow rather than trying to fight the trend, adding further momentum to trades.
Using valuations as anchors in a transformational market is like relying on the high-water mark to protect you during a tsunami. Markets won’t turn around the instant they’re highlighted as abnormal.
A trend that takes traders by surprise, that they are not positioned for, and constantly having to readjust parameters for, is one that can run and run…