By Richard Breslow, a former FX trader and fund manager who writes for Bloomberg
Monetary Policy as a Weapon of Mass Destruction
“A man’s gotta do what a man’s gotta do” has negative connotations. And for good reason. It suggests resignation, lack of any choice or simply the absence of care for the consequences. The forced grasp for yield in today’s markets very much brings the phrase to mind. Investment managers across the board are repeatedly compelled to chase it at painfully bad levels.
Trying not to, once again, fall hopelessly behind their benchmarks, actively managed funds must scramble. They’re so often underinvested because in the deep recesses of their hearts they believe it represents no more value than an opportunity to flip.
“If I’m going to go out of business anyway, I might as well close my eyes and buy” is an investment thesis that works until it abruptly doesn’t.
Insurance companies and pension funds have rules and obligations that have to be met. They have little choice but to make the same Hobson’s choice.
This explains why we have absolutely no choice but to be fixated on central bank policy to the exclusion of all else. They’re the band, we’re the dancers.
There’s a growing belief that this can’t end peacefully. And why more and more central banks are screaming about the negative externalities exported by those practicing the extremes of extraordinary monetary policy.
We’ve learned that we exist in a global economy. What hasn’t been accepted, because the consequences may prove dire, is that we also are moving toward global monetary policy.
Domestic policy mandates can no longer be pursued without concern for the international implications. Every time the BOJ or ECB corner a bond (or ETF) market they further distort and damage markets everywhere.
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