Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide. Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business since 2008, sending shortly after the market close.

The opinions expressed below are my own and do not necessarily represent those of Harvest Volatility Management, LLC

Reflex. Dip-buyers did what they do best and yesterday’s selloff was reversed. The news today was pretty blah. If there were a catalyst to point to, it’s the noises made by the ECB today. Yesterday Draghi made comments about the health of the European economy (positive stuff). The markets interpreted it hawkishly. Today the ECB re-managed its message to suggest the market overreacted. So bulls went to work in Europe and we followed suit.

Central banks and their messages are paramount to markets. The size of their balance sheets and the size of their involvement in bond markets means that they can dictate the next leg of the market. This is actually positive for the bulls because central banks want to keep the bull going. The don’t want to create a speculative frenzy of course but they also don’t want to trigger a bear market. They will have to stop buying bonds at some point and they will have to shrink their balance sheets too…. But when will they actually get around to doing that? When will they actually pump the brakes on their liquidity policies?

My point here is that when it comes to the central banks of the world, they are allies of the bulls. The bears are hoping for policy mistakes. Policy mistakes may be inevitable and some are arguing that mistakes have already been made (we’re just waiting for the effects to hit) but….. until the mistake is unambiguous to all, it’s just wishful bearish thinking.

The party continues, the tab is open, and the central banks don’t want the party to end with a police raid.

Can they actually pull that off?

That is the central bank question of the year (or next few years).

See you

tomorrow

,

-Mike