Market Briefing For Monday, April 25, 2016

A 'race to the bottom' - in monetary policy (or below, if considering alarming implications that even considering negative interest rate policies imply); reminds investors that central bankers have been trying to combat mediocre economic environments that otherwise might rival some of the most dire periods in modern history. By virtue of emergency stimulus retained to extreme points of becoming counterproductive, the central banks show their lack of recognizing how this has actually drained money from the system; and it created a reliance from which it's hard for our Fed (or others) to retreat from corners they painted themselves into.
 

The goal has been inflation; which governments need more of, but citizens don't generally. While this 'race to the bottom' failed to trigger sustained growth in part because of the changed world, demographics, outsourcing, and also cornering of markets largely by China, which has sort of imploded since it was all primarily hoarding or unsustainable demand, it contributed to a 'race to the top' of equities in a way that now has every money manager holding heavily long nervous (that is to say the least) about the risk-matrix that has been developing for awhile now.

Earlier baseless euphoria passed over the realities of deteriorating tech and other stocks; not to mention the latest head-fake emanating from a Middle East perhaps as interested in markets as they are in Oil production levels. There are at least 4 questions investors need to be asking: 1) are valuations really so high and why; 2) is monetary policy still aligned with Bulls; 3) is sideline money so evident that it can propel prices higher yet again; and 4) will seasonals prevail.
 

The answers have been described thoroughly assessed, with some aspects not yet fully blossomed, while others clearly are hanging on tenterhooks. While I won't delve into what we've already deduced from the evolution of all these 4 Questions (which generally suggest a major distribution is behind; earnings are not supportive; stocks are being rotated to keep indexes alive or hopping to and fro; and we're seeing some 'front-selling' ahead of the more nervous May part of this April-May risk window; which incidentally precedes the June BREXIT vote.

One footnote that hasn't been described other than the lack of liquidity and rapid thrusts in alternating directions, as should be noted. There is some controversy (and complexity) surrounding recent changes in NYMEX and Globex 'banding' regarding lifting of stops by the markets without notifying the trader, and then putting it back in, if price bands shift. We hear the bands in ES are around just 6 points, which is pretty tight given the swings we're getting these days.