Central Banking Opioid Leads to the Insouciance to Rising Geopolitical Risks
I find it rather amusing to see how financial markets seem to have been jaded with the idea of risks.
For instance, a low probability has been imputed to geopolitical risks to have significant impacts on the markets
Hence, downside actions from the largely unexpected events such as the Brexit and the Trump victory have only been met by a series of savage upside price bidding of the world’s stock market.
And it has also been entertaining to see how central banks have attained perceived divinity, such that they are seen as having the power to shield real world risks from affecting the stock markets.
Central banks interventions work like opioids on markets
Bank of America’s Michael Harnett analogizes central banking interventions to JRR Tolkien’s classic “the Lord of the Rings” which he calls as the “Liquidity Supernova”.
From the Business Insider: The global markets all come down to central banks. At least that's the argument of Michael Hartnett, the chief investment strategist for Bank of America Merrill Lynch. In a note to clients on Thursday on what he called "the $1 trillion flow that conquers all," Hartnett observed that the amount offinancial assets added to central banks' balance sheets was the "one flow that matters" in the market. "$1 trillion of financial assets that central banks (European Central Banks & Bank of Japan) have bought year-to-date (= $3.6tn annualized = largest CB buying in past 10 years); ongoing Liquidity Supernova best explanation why global stocks & bonds both annualizing double-digit gains YTD despite Trump, Le Pen, China, macro," Hartnett wrote.”
This weekend, France goes into polls for the first round of presidential elections. Survey posits that this will be a very tight race. But why trust surveys especially with a huge number of undecided? Candidates of the extremes side of the political spectrum appear to be in close contention for the top spot, namely far right anti-Euro candidate Marine Le Pen and left-wing Jean-Luc Mélenchon.
Yet both candidates represents anti-EU and anti-globalization. Will the anti-establishment trends seen in the Brexit and Trump votes percolate to France? If yes then how should such impact the market?
Buy The F@#$ Dip???!!!
I wrote about the risks from North Korea last week. The war drums appear to have partly subsided. That’s because the US seem to have taken a pause. Does this signify the calm before the storm?
When the Trump administration threatened to send its armada to Korean Peninsula, the USS Carl Vinzonstrike group reportedly sailed in the opposite direction or through the Sunda Strait near Indonesia.
A US fighter jet crashed off the Philippines while attempting to land on the carrier. As the North Korean leadership continues to taunt the US government, the aircraft carrier has reached western Pacific Ocean for ajoint drill with Japanese destroyers. The rogue North Korea even went far enough to warn its patron, the Chinese government which the Yon Hap Agency reported “not to step up anti-North sanctions, warning of "catastrophic consequences" in their bilateral relations.”
If North Korean government will feel isolated and cornered, then expect even more belligerence and provocations. The likely response could be an actual shooting war. An American was reportedly detained in North Korea.
If a shooting war starts in the region, just how will the Philippine economy and markets be immune to this? Will “domestic demand” or euphemism for credit expansion function as a shield? Or will this expose the accrued imbalances?
How much opioid is required to attain indifference to a possible risk of total ruin?
Market Manipulation: Philippines Versus China
I am supposed to devote much space to this today. But weariness has gotten into me.
China’s stock market has landed in the international news again. The reason for this: China’s National Team has been reported to have actively contained last week’s selloffs.
The lower left chart from Bloomberg shows that the Shanghai index hasn’t fallen by more than 1% in a day during the last four months.
The Shanghai index (SSEC) dropped by 1.23% this week. As shown in the 3 day intra-session charts of the Shanghai index at the top, massive afternoon delight pumps went into action at around 1:30-2:00, or had been timed with the low of the index.
In three sessions, the SSEC either erased all or most of the losses.
Fascinatingly, the pumping motion at the SSEC looks very similar to the two day activities at the Phisix.
But the Phisix has an ace. The latter can pump the index at a cheaper cost based on mark on close orders.
Friday’s (April 21) pump and dump should be another wonderful example.
At least it’s widely known that the Chinese national team has responsible for actively destroying the pricing system of their stock market.
But who’s the responsible here?
In the Holy Week holiday abbreviated trading session, net marking the close pumps delivered 86% of the week’s .61% return.
This week, net mark on close pumps reduced losses from 1.03% to just .67%.
And this involves only end session pumps.
The above shows why the Philippine equity markets have even been worse than China in the context of market manipulation.
It’s almost a new normal. It’s another week where the moderate decline of the key bellwether concealed on the incredible degree of volatility simmering underneath it.
9 of 30 issues or 30% has gains or losses of 2%.
Such outsized volatility has just been symptoms of grotesque price deformity.
And it wouldn’t be appropriate to call the violent price actions as panic buying or selling. Vertical prices in both directions are hardly from retail investors.
Instead, Philippines stocks have largely been about domestic banks and nonbank financial institutions versus foreign money.
And yet foreign money can now even showcase local money.
Except for the taper tantrum (2013) days where locals sold as foreigners bought, much of the events since 2014 to 2016 reveal that foreign money leads the direction of the Phisix.
When foreigners bought, the Phisix moved higher. However, when foreign money sold, the same bellwether either went down or went into a consolidation mode.
It’s only in 2017 where the Phisix rose even as foreigners sold.
This shows of the intense desperation of local institutions in trying to prop the overvalued stock markets. They would do “whatever it takes” just to meet this goal.
Damn the real world consequences!
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