An interesting observation in the weekly note by Eric Peters, CIO of One River Asset Management, who points out something we have touched upon recently: while stocks continue to soar in the face of one crisis after another, propelled by an endless amount of de novo liquidity…
… and yet with crises not “big enough” to push the world to the next – and final – level in monetary policy just yet, namely helicopter money, what is an investor to do next if, suddenly, there is no further crisis?
This is precisely what we hinted at a month ago in “Wanted: Policy Panic” – Why The Biggest Investors Are Praying For A Market Crash“
It is also the key topic discussed by Eric Peters in the excerpt below.
“This uprising is a gift from God,” exclaimed the autocrat, ebullient. “They’ll pay a heavy price,” continued Erdogan, unleashing his purge of political opponents. 10,000 were arrested, 60,000 civil servants dismissed, hundreds of schools closed. “It looks as if something had been prepared, the lists are available, which indicates they were to be used at a certain stage,” said EU commissioner Hahn, overseeing Turkey’s EU bid, referring to the purge, “It’s exactly what we feared.” But Erdogan is simply doing what every opportunistic leader does; not letting a good crisis go to waste.
“There’s no need and no possibility for helicopter money,” said Kuroda in a BBC program (the quote dated June 17), explaining that existing monetary tools are sufficiently powerful. The BOJ leader faces a dilemma. How to introduce a new and more radical policy in the absence of acute crisis? You see, as excited as bearded Bernanke is by the prospect of freshly-printed Yen raining like confetti, the economy isn’t sufficiently bad for grey-haired voters to willingly risk runaway inflation, destitution.
“We are ready, willing, and able to act if needed,” stated Draghi at the ECB press conference, where he had done nothing new. With stock and bond markets rallying in the aftermath of Brexit, and the Euro stable, there’s no European crisis to justify more radical action. Just an uneasy feeling.
Because no one knows whether the accumulation of all this extraordinary stimulus is solving our problems, or simply staving off a crisis that will reappear soon after we stop. And with so much of this new money leaking to America and emerging markets, it’s not just a question for Europe and Japan.
Which leaves investors facing a dilemma all their own: In a world awash in stimulus, how should you invest in the absence of a crisis?
One simple answer: keep creating lots and lots of small crises, which push the market higher, dislocating ever more from reality, until the inevitable “drawdown” (in Goldman’s words), which in turn will be sufficient to prompt just the “policy panic” to unleash even more stimulus, and send global risk assets soaring to never before seen levels. Rinse, and repeat. Just pray that in the meantime the natives don’t get too restless…
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