It's de-risking, it's destruction, it's de pensions?

Plus ca change, plus c'est la meme chose.   Although this year has not started identically to last- the generally solid performance of the dollar being a notable exception- there are nevertheless striking similarities.  

One need not have the memory of an elephant to recall that 2014 started with all of December 2013's popular trades inserted into a blender, popped into a scalding hot bath, and having a plugged-in toaster thrown in to boot.  Generally, this entailed weaker equities, stronger fixed income, a stronger yen, and a weaker USD.  Other than the last, each of these sequences has repeated itself thus far in 2015, albeit in a miniscule sample size.

Of course, the set-up wasn't exactly identical.   Punters ended 2013 enthusiastically short US fixed income, whereas natural selection weeded out bears who didnt learn how to hibernate in 2014.  Interestingly, the squeeze in the long bond has been much more pronounced thus far in 2015, despite the apparent absence of out-of-court positioning.

A similar phenomenon is observable in equity markets.   Macro Man's recollection was that stocks stumbled hard out of the gate last year.   While it's true that they fell from the word go and didn't get back above flat on the year til the end of February, the early swoon we've seen thus far is much worse than we had last year, even including yesterday's tasty squeeze.

It makes little sense to posit a conventional de-risking phase as an explanatory variable, as that sort of activity would be more likely in December than January.  The ongoing destruction in the crude market and the concomitant collapse in inflation expectations compensation could be a valid explanation, given that lower headline inflation could credibly depress yields while carnage in the energy high yield market could submarine equity performance, if only temporarily.

That having been said, the magnitude of the moves begs for a deeper explanation.  Widespread reports of abject illiquidity in markets suggest that it doesn't actually take a lot of size to push the price around.  If this is what the alphabet soup of regulators want, then they can say their huzzahs, because they've got it.  Just don't come crying to Dr. Market when the wind changes (if it ever does!) and the direction and price moves are not to your satisfaction.

From Macro Man's perch, which admittedly is one not particularly close to the flow, the price action smells strongly of pension rebalancing.   Certainly those institutions were at the epicenter of the bonds up/stocks down trend in early 2014, and it stands to reason that they could be repeating the exercise this year- even if the relative price moves of 2014 were nowhere near as large as 2015.

In reality, it's probably a mixture of a number of the above mentioned factors- oil, illiquidity, and pensions.  If that's true, then we can probably expect the trend to continue a while longer, possibly irrespective of what payrolls do on Friday.

De-risking, destruction, de pensions- punters probably won't care as long as they can avoid the dee-saster of early 2014 this time around.