Will ‘Great Trends Grow’ From ‘Little Volatilities’?

Former trader and current man who gave up on you knowing how to trade years ago, Richard Breslow, is out on Wednesday with a pretty good piece that touches – knowingly or not – on some concepts Deutsche Bank’s Aleksandar Kocic has explored at length: the idea of a noisy status quo, and beyond that, the notion that central bank transparency has made it impossible for anyone to form a long-term view.

As a reminder, here’s Kocic on the noisy status quo:

As transparency became the word of the decade, by its very nature it created the forces that push everything to the surface. Things exist thanks only to the attention they produce. There is no room for ambiguity. Although shocks (political and other) keep arriving in the market, they seem to be appearing at what looks like predictable time intervals (usually, on Fridays). Practically every week, there is a new issue that eclipses the previous one, and we lose interest in past issues, before there is any semblance of resolution. But shocks, if they are predictable, lose their spell and gradually become facts of life. Predictable political shocks feed back into their source. Due to their antagonistic character, they gradually erode the ability to make consensus and reduce the ability to legislate, making further reforms at least questionable, if not highly unlikely. The market “euphoria” (aka the Trump trade) that followed immediately after the elections is being perceived as increasingly remote. Despite all the promises of reflation of the economy, fiscal stimulus, expectation of economic turnaround, no change is on the horizon. We are stuck with the status quo, albeit a noisy one.

With regard to radical transparency (not the Ray Dalio kind), it transforms policy into a referendum. There are no clearly identifiable anchors. The goal posts aren’t fixed. Or, as Kocic puts it, there’s an absence of “rigid reference point[s], like a well-specified reaction function, objectives, and triggers.”