"Everyone loves ECB day. The set up for this one was particularly good – I like to think of it as ‘Peak Draghi’..... The market had persuaded itself that Draghi was ‘Its kind of guy’. Everyone anticipated that the ECB would perceive what the market expected, and do more."
"Discretionary macro getting utterly creamed in this EUR move. CTAs also. Long EUR trend with low vol means it was the consensus macro trade for both the humans and the trend models... I wonder what fresh bucket of shit Yellen can pour over me after the Draghi clusterfuck..."
"Yet, the more the market discounts that Draghi will move inadequately (e.g the more the euro goes up and the stock market goes down) the more that it is likely the ECB will move at an accelerated pace and prove the market wrong. That is because Draghi and the body of those in the ECB who shape policy with him understand how the economic machine works. They understand that the degree of tightness of monetary policy is influenced by a) interest rate movements, b) QE movements (and related macro prudential policies) and c) currency movements. With interest rates unable to move meaningfully, QE and currency movements matter most. Clearly there needs to be more easing and clearly the more the currency rises, the more (and more forceful in completion) the QE needs to be."
Still, it's just healthy that people realise that Draghi is "just" a central bank governor, not a shroom-powered, flame-throwing super plumber. As one finance type tweeted this week: "Remember Wednesday, when Draghi was still omnipotent? Good times."
“It is all to do with us giving daily liquidity to our clients, when the underlying securities or bonds or government bonds that we own are maybe less liquid, and what this discussion is centred all around is, how systemically risky is that?”
He said it would be “great” if regulators stepped in to limit investors’ access to funds, a move which would limit the harm caused by a sudden run on the sector.
Mr Gilbert acknowledges the move would be highly unpopular if any individual asset manager tried to go it alone and impose such a change on its customers – hence wanting the Bank of England to take the lead.
I kinda agree. Daily liquidity has not been written into the UN's Universal Declaration of Human Rights, and there are compelling reasons to limit investors' ability to yank money out at a drop of a hat, both for their sake and for the sake of the safety of the financial system. Firstly, trading in and out of funds whenever panic or euphoria seizes an investor is bad for long-term returns. Secondly, the bond market is quite similar to the banking system, in that asset managers buy long-term assets with pooled short-term funding - a "liquidity transformation" in finance jargon. That makes bond funds susceptible to quasi bank runs if investors fear losses. Here's the Bank of England's latest Financial Stability Report, out last week, on the subject:
"The recent rapid growth in open-ended funds, and their continued investment in less liquid assets, has reinforced the risk that large-scale investor redemptions could result in sales of assets by funds that might test markets’ ability to absorb them. The risk is that this could impair market liquidity, which is already fragile, particularly in markets that are important for extending funding to the real economy."
“People used to say oil couldn’t go above $30 a barrel because Saudi Arabia would open the spigots, and then it went to $100. Everyone ‘knew’ that long bond yields couldn’t go below 4 per cent, even [Fed chairman Alan] Greenspan called it a conundrum when it did. In the 1950s people said that stock yields always had to be higher than bond yields because equities were riskier. It’s amazing how surprised people are by surprises.”