Boxed In

The markets over the past several years, while scattered with intermittent bouts of volatility, could only be described as controlled. By controlled, we mean range bound with a bias towards the preexisting trend. Clearly the sole determinant of such managed “prosperity” lies at the feet of the massive amount of unorthodox global Central Bank monetary policy. In past commentaries we referred to this market behavior as being similar to the movie “Groundhog Day” whereby every day looks like the last and capital flows dare not follow any script that involves something out of the ordinary. Those investors that think outside of this Fed- created box, have been nothing but disappointed the last three years.  The problem with this scenario is that the world rarely sticks to scripts, in spite of what Chairman Yellen thinks, and that the more markets become immersed in the philosophy that Central Banks are: all knowing, all seeing and all powerful, the probability that strategies embracing the polar opposite will become more and more profitable. In our estimation, the interjection of negative rates of interest across a number of Government Bond Markets is the proverbial straw that broke the camels back.  As we have said, not only have investors been shoved into the risk pool by Central Banks, their heads are now being held under the water. Our admonishment to Buy Stuff and sell Paper would have worked perfectly if  only executed in reverse. However, in a world where capital flows and asset allocations are currently driven by unproven, untested and highly unorthodox Central Bank policies the potential for a rapid shift in philosophies away from  what has “worked” has never been greater.