When we surveyed global markets this week, we got thinking about the idiom “headless chickens.” It wasn’t so much that WE felt like headless chickens, dear readers. Rather, it was that there is so much confusion out there as to where markets are heading. Log on to any of a number of economic forecasters, and you will see that they have just cut their global growth forecasts. So much for a recovery! Turn then to some other market analysts, and they will be saying, “Don’t worry, rate increases can actually be bullish!” And what do markets as a whole think? Well, the S&P 500 is within a smidgen of it’s all time highs, despite the US Treasury yield curve having capitulated and collapsed from 1.6% to 2.6% in a flash, as the fears of a reverse in easy monetary conditions washed like tsunami over the bond market. Locally, the equity market has taken a bit of a battering, but has already recovered off its low points.
We all get the sense that something has certainly changed, and that the Fed’s “Taper Talk” was an inflection point. But what does it actually mean? Is it the beginning of the end, or is it the end of the beginning? So in order to help enlighten you we thought that the best way to do this was to characterise the confused market as a headless chicken. Ben Bernanke just chopped off the head, and we all THOUGHT markets were going to roll over and die. After all, rising interest rates and lower or non-existent QE flows were a sure end to the bond bull market, right? And then that environment would also kill off the Happy days – Punch bowl mentality of the equity markets.
Well, stranger things have happened! A headless chicken we know is technically dead, but nerve impulses can cause it to still run around randomly for a while before it finally keels over. Hence the idiom about headless chickens. But did you know that in the 1940’s there was a headless chicken that lived for about 18 months? His name was Mike the Headless Chicken. He was supposed to end up in a dinner pot, but the axe, while chopping off his head, missed most of his brain, and that of course meant he carried on living. (Perhaps that’s also a comment on how small a chicken’s brain is?) Mike the Headless Chicken even carried on preening himself, and came home to roost. Sadly for Mike, we do think that he never quite graduated into ruling the roost, if you know what we mean (Mike to this day even has his own website : www.miketheheadlesschicken.org )
Nonetheless, before we are tempted to digress, let us come back to markets. So we know that the head has been chopped off, courtesy of Ben the Executioner, and technically, markets are supposed to suffer. But we suspect that we may end up with a period of miketheheadlesschickenitis for the time being. What was supposed to be dead comes roaring, well, OK, crowing, back to life. But dear readers, let the buyer beware. Much like the emperor with no clothes, eventually sanity will prevail, and the chickens will come home to roost.
The Atlantic Team.