In 2008, the brokers and bankers made a huge mess in the subprime mortgage markets and caused the deepest recession in decades. The finanical crisis cost the tax payers trillions of dollars to bail out the failed financial firms and to restart the nation’s economic growth engine. The message during the market recovery to Wall Street from the central bank and the government has been “don’t mess with the financial markets to cause another market crash.” The media and many pundits haven't got the message and are still writing very frequently about the impending market crash. With the recent news on Greece, the media went all out to scare people but we wrote that investors shouldn't be surprised given Greece's history of debt problems. The S&P 500 shrugged off the negative news and barely declined at all, a pullback of just 3%. Looking at the trend, you’ll notice that the S&P 500 has been trading sideways at 2080 plus or minus a few points in a narrow range since November 2014.
However, this doesn’t mean that the international trading firms both on the buy and sell side are not allowed to “mess around.” They figured out an acceptable way to the central bank making millions in profits daily by marking the futures up or down 0.5-1% before the market opens or after the market closes coinciding with news developments — intraday, the markets barely budge. This is all done in the future’s markets overseas where there is little liquidity and US regulation. In other words, the traders in brokerage houses and banks are making money with precision and on their terms with little or almost no risk while the public has been scared to death by the never ending bombardment of “wolf is coming” prognostications. The “illusionary” volatility, in our opinion, is not fundamentally based on economic developments but rather something generated by a highly creative media. I guess the central banks are willing to accept the very short term daily volatility as long as the market’s trend line and narrow trading range are not violated.
No financial hurricane yet: clear skies for now
Based on our research, we believe a financial hurricane is not yet here as we monitor the financial weather condition diligently with hundreds of economic, monetary, technical and valuation indicators on a daily basis. Currently, the world economies are slowing at a very modest pace but the economic planners are determined not to have another recession. The central banks in Japan, US and Europe think they have things under control by injecting over $100 billion a month into the financial system to make sure the economic ”ship” is functioning without disruption; costs of money, labor and raw material remain low to eliminate the risk of negative surprise on corporate profits.
Have the central banks eliminated future financial market disturbances forever? If not, the key question to ask is when it occurs, who will bail out the central banks? As an objective, Runnymede is dedicated to be the best financial weatherman in the investment industry as we possibly can. By diligently monitoring the economic and fundamental backdrop, our goal is to invest our clients’ funds with less risk and stress. When the hurricane comes every 5-7 years, we will be ready serving as our clients’ financial scout and protecting their assets. We will execute our evacuation plan and guide their assets to safety. We always ask investors two questions: “Do you have an evacuation plan?” and “Where is your financial lifeboat?” If you don’t have a financial weather man, talk to Runnymede.
Header photo from Unsplash Antunes Vila Nova Neto