It is about time markets went all wibblywobbly. 
We will come onto the reasons why in just a minute, but it is a considerable relief to us that the previously fearless markets have at last jumped when the bogeyman went boo.
We spend far too much time talking about central bankers. The fate of the world, so it seems, rests in the hands of a coterie of politically appointed bureaucrats. The top men and women of the Federal Reserve, the ECB, the Bank of Japan, the Bank of England, the Swiss National Bank et al have extraordinary power to determine the path of the world’s economy and stock markets.
On balance, this is probably not a bad state of affairs. It can’t be proved, but they are probably making a better fist of it than transient politicians would have. Their collective attitude to financial markets is fascinating. They manage to combine a philosophical hands-off approach with a deep infatuation with ensuring stability. It is an odd contradiction.
Over the late summer there have been a number of utterances to the effect that market volatility is too low. Now that should not be the Bankers’ worry: markets are what markets are.
Performance of VIX in 2016
Source: FE Analytics
But it looks very much as if a decision has been taken that markets must have a short-term upset in order to avoid something nastier in the longer-term. It is a high stakes game of bluff, double bluff and actually more bluffs than an evening of spoof at Frank Muir’s, with Patrick Campbell, Robert Robinson and Arthur Marshall.
Let us now quickly backtrack to last Thursday and the first post-holiday meeting of the Governing Council of the European Central Bank. Markets wanted more QE.
Mark Carney had given them their latest dose of Katy and they wanted Mario Draghi to hit them big time. No longer satisfied that the ECB should buy every bond on the continent, they wanted to hear that equities were next on the list. Yes, really.
Mario merely said the usual, that the ECB was in little rush to do very much else and was pretty happy with its super-sized bond album. Markets got the hump.
But in getting the hump and dumping the bonds that they thought the ECB was going to buy, all that happens is that yields rise and purchases become more attractive to the Bank. Round and round we go.
Next we need to add a couple of slices of American pie.
First, members of the FOMC have become notably vocal about the need for another rise in interest rates. The latest was Eric Rosengren, the main man at the Boston Fed. The flames were then fanned by a terribly influential (allegedly) hedgie saying that bond yields were going to go up.
I am aware that I live a sheltered life down there on the Moor, but I confess a previous ignorance of Jeffrey Gundlach.
A quick glance at Google however shows up a headline from Fortune mag in July about the ‘Bond King’ having his worst year ever this year. CNBC and others carry his message to ‘sell everything’. Is it just me, or is the market always full of geniuses having their worst year ever and proclaiming that we are on the edge of apocalypse/megaboom?
Nevertheless, Gundlach moves markets and he says yields are going up.
Still, the most important nerve tester came yesterday. Hillary’s faint and the subsequent disclosure that she has pneumonia make, I think for the first time, a Trump win a credible prospect.
Until now we have all been bumbling along thinking that we don’t need to worry too much about Trump. He’s a bit of card, but surely nothing to really worry about as Clinton is going to win. Quite like the Leave campaign then.
Hillary’s faint makes a Trump win a very real prospect.
No-one, not least Mr Combover himself, knows too much about what a Trump win will actually mean. Other than putting the big red button at the disposal of a man alleged to have asked why he can’t press it. We can add to the list a 45 per cent tariff on Chinese exports to the US, a 20 per cent tax on all imports, declaring China a currency manipulator, detaining and deporting all illegal immigrants, legalizing drugs and getting Mexico to pay for a wall along the border.
That is deliberately sensationalist on my part. There is much on Trump’s agenda that reads very positively; but my point is how easy it is to make President Trump sound scarier than a night in a tarantula tank.
Jim Wood-Smith is head of research at Hawksmoor and writer of the group’s weekly ‘Innovation’ blog. All the views expressed above are his own and shouldn’t be taken as investment advice.
