There is a growing consensus that the market has become a political choice, a collective mix of what the Fed might do next and Chinese Communist Party (CCP) policy.
Think about it. Concerning the latter, the Chinese Communist Party (CCP) policy is a significant factor in the price trajectory of commodities.
“There is a growing consensus that the market has become a political choice, a collective mix of what the Fed might do next and Chinese Communist Party (CCP) policy”
The CCP has stepped up its campaign to rein in commodity prices and reduce speculation in a bid to ease the threat to its pandemic rebound from soaring raw material costs.
State-owned companies are required to report their future commodity positions to the State-owned Assets Supervision and Administration Commission SASAC.
So, it is an example of how state capitalism, in China, the world’s largest factory, influences global commodity prices. The point we want to highlight is that it is a political choice, CCP policy, and not price discovery, which sits in the driving seat of commodity prices.
Put simply, if the CCP wants to kill commodity speculation, it unleashes SASAC onto state-owned companies, and policy suppresses speculative demand, thereby forcing commodity prices much lower.
“state capitalism, in China, the world’s largest factory, influences global commodity prices”
The longest secular bull market in stocks is also a political choice. So, the Federal Reserve, and its western aligned sidekicks, ECB, BoJ, and BoE, through monetary policy, determine the fate of stock prices
Central Bank asset purchases where the currency is created to buy assets, better known as quantitative easing, have become the main driving factor of the longest bull market in living memory.
“Horseman Global’s CIO, and recent owner, Russell Clark, was brave enough, perhaps even reckless, to do what every trader learns not to do, which is don’t fight the Fed” – Win Investing
Again, we see a political choice, in other words, monetary policy direction driving asset prices
Price discovery, where price action is determined by the market mechanism of supply and demand-driven, by fundamentals is no longer relevant. We experienced negative divergence where stock prices move in an opposite direction to the fundamentals. So, the greatest bull market in a global lockdown with the economy in a mini depression was fueled by trillions of dollars of QE.
The lockdown economy and accompanying stock bull market underscores the fact that markets have become a political choice
The above explains the recent closure of a well-known bear market fund known as the Horseman.
Horseman Global’s CIO, and recent owner, Russell Clark, was brave enough, perhaps even reckless, to do what every trader learns not to do, which is don’t fight the Fed.
But Horseman Global’s CIO broke the fight club’s golden rule and doubled down with his bets against the Fed and the rest is all history.
A relentless liquidity onslaught by the Fed, ECB, and PBOC, which now some think includes the Fed’s “NOT QE” led to a wave of redemption letters from investors.
Russell Clark’s Horseman threw the towel in as the bear fund became overwhelmed by redemptions and compounding losses.
After slumping 6% in October, and losing money on 4 of the past 5 months, the Horseman fund is now on pace for its worst year on record, down 27.05% YTD, surpassing the -24.72% return posted in 2009, and reversing all the goodwill the fund created with its 7.5% return last year when most of its peers’ lost money alongside the S&P500.
“I think it is time to step back, think about where we are going, and then come back when I can see an opportunity for my skill set. Perhaps that’s never, but I doubt it. The only constant in life changes” – Russal Clark
But it was Russell Clark’s Horseman letter to investors explaining why the fund was closing, namely that markets have become a political choice, a bet on the Fed’s and CCP policy, which is good reading.
The letter reads;
“And this is why I am returning capital. Markets have now become a political choice. US markets are essentially a bet on the Fed unable to raise rates, and congress unable to regulate big tech or raise corporate tax rates. Commodity markets have now become a bet on Chinese policy objectives, and currencies have become a bet on what Chinese policy objectives are too,” wrote Clark.
Give me an economic problem then I can properly gauge risk. Give me a Chinese political problem – I am taking a guess as much as the next person. Did I think Alibaba was going to fall 50% this year? No, not until the Chinese government told me to think that way. Is Alibaba a good short now? I have no idea, and like everyone else will have to wait to see what the Chinese government says.
So, I think it is time to step back, think about where we are going, and then come back when I can see an opportunity for my skill set. Perhaps that’s never, but I doubt it. The only constant in life changes,” He added.
Clark’s frankness that markets have now become a political choice will not come as a surprise to most traders investors who have survived and even prospered during the last decade-long of QE to infinity and a perpetual stock bull market.
The market, which is everything but, in name, a political tool to shape and mold public opinion.
Economics and fundamentals have become irrelevant, and it is a bet on what the Fed, CCP policies will be.
Prices action is not driven by a market but by policies.