You Buy It, You Own It

And if you drop it, you need to clean up the mess. This is what happens when central bankers decide that part of their mandate is to prop up equity markets. Of course it’s all in the name of fighting deflation, but we all know where it all leads.

Markets change their nature over time. As soon as we begin to recognize patterns, we see those patterns evaporate. This is one reason why it’s difficult to have any confidence in a trading system that has been “quote” — backtested. This is not to say that patterns will not repeat, but it helps to take a panoramic view of the market landscape and realize what higher-level macro forces are at play.

I feel for the central bankers who probably aren’t getting much sleep at night as they worry about the prospect of complete financial disaster, but I also hold them accountable for the moral hazard they had no problem creating. They own this market. The rallies are all theirs. And now the selloffs will be theirs too. Everyone is waiting to see what the owners of this market will do next. Nobody cares about the economy anymore. I’m not sure they ever did, quite frankly, but what’s different now is that everyone does care about the Fed’s next move. And what the next bailout will look like.

When you buy into something — be that an economic theory, a trades system or an idea — you own it. And it owns you. Just remember to clean up the mess when it fails you.

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