Surprise surprise! The market tanked today. Maybe you should just turn off your screen just go and see a movie?
I highly recommend you see Dr. Dolittle and his Schizophrenic Push me-Pull you. The Push me Pull you is a two-headed llama. One llama is a tough- love interest rate hawk who wants to go right; the other a llama is an easy-money dove in favor of unlimited quantitative easing and negative interest rates policy.
The story is about the world’s central bankers portrayed by this lovable but sexually frustrated beast that wants to go in different directions– one want rates so low they drop below zero and the other wants to cool an over-heated market. Needless to say, this is a horror film, not for the squeamish and (warning: spoiler alert) it does not end well.
Classic bubbles, perpetuated by easy money, are recapitulations of Newton’s law of gravitational attraction: “what goes up must come down.” Negative interest rates, on the other hand, move us into an alternate universe, the weird and whacky world of quantum finance where reality is nothing but an illusion– but a very persistent one” as Einstein said.
As negative interest rates have been embraced by half the central banks, the Fed’s wait-and-see posture today seems more like an illusion than reality: that a rate hike will be too hard to resist. The market tanked instantaneously taking this change in market sentiment as the harbinger of an end to the era of easy money.
Dr. Dolittle’s Push me-Pull you is a reminder that when half the world is betting rates go up and half betting they will go down, trouble lies ahead. In the end, everyone gets screwed.
It also reminds us that central bankers should not play dice.