The CONfidence Game
The global economic landscape remains weak yet there appears to be no concern on the side of bulls and investors alike, so firm is the belief that the earnings recession that is unfolding is temporary, so firm is the belief that dovish central bankers can once again prevent any downside.
I get it, it has worked for 10 years and it’s worked again seemingly since the December lows. Why pretend it is anything but central banks?
After all Jay Powell is rapidly proving to be the market’s biggest thrust driver to the upside in 2019:
From my variant perch it’s a sign of deep underlying weakness. There is no bull market without central bank intervention or jawboning. Plain and simple.
The underlying premise of it all:
Praet: As a central bank, we can create money to buy assets #AskECB
There. They print money and buy assets and in process they distort the entire global price discovery process. Why? Because they have to in order to keep confidence up.
The world is one sell-off away from a global recession because market performance translates directly into consumer confidence and spending. Don’t believe me? Check this out:
In Q4 household financial assets dropped hard for the first time in a long time.
Why? Because markets dropped hard. What else dropped? Retail sales dropped 1.6% in December the biggest decline since September 2009.
Coincidence? You tell me:
Is it the economy that’s leading the horse here? Or is it the other way around? Q1 GDP is much worse than Q4 yet retail spending is higher in January. The case can be made that it is market performance and related confidence that leads spending. No accident then that retail sales bounced back a bit in January, after all we saw a massive rally following the big global central bank flip flop.
