Back in November, we brought to the attention of our readers a stunning admission from one of Citi’s head credit strategists, Hans Lorezen, who said matter-of -factly that during his conversations with central bankers, there was a growing fear that they’ve lost control:
In the context of a self-reinforcing, herding market, the pivot point where the marginal investor is indifferent between putting more money back into risk assets and holding cash instead is fluid. But when the herd suddenly changes direction, the result is a sharp non-linear shift in asset prices. That is a problem not only for us trying to call the market, but also for central bankers trying to remove policy accommodation at the right pace without setting off a chain reaction – especially because the longer current market dynamics run, the more energy will eventually be released.
That seems to be a growing fear among a number of central bankers that we have spoken to recently. In our experience, they too are somewhat baffled by the lack of volatility and concerned about the lack of response to negative headlines…. Our guess is that sooner or later in the process of retrenchment they will end up going too far – though that will only be obvious with hindsight.
Fast forward to today when as Yra Harris writes in his latest Notes from the Underground, the realization that central bankers are on the verge of panic is that much closer, because as the veteran trader and strategist notes, “the continued efforts by the ECB, BOJ and Swiss National Bank to keep their overnight rates at crisis-era levels is increasing concerns around the globe that central bankers in general do not have an exit strategy.”
…click on the above link to read the rest of the article…