"Markets too important to be left to investors"

I was speaking at a RCM Alternatives event in Boston with Ben Hunt of Salient Partners. He made a very good point when discussing the actions of China to slow its stock market slide. It seems regulators and central banks believe, "Markets are too important to be left to the actions of investors."

This phrase may sum up the view of all governments right now and what causes the low volatility. If investors want to get out of equity markets, we have to stop them. If investors do not want to make risky investments in fixed income, we have to force rates down and keep them down to ensure investors are willing to move money out the curve. Governments have to steepen yield curves to make banks profitable. Rates cannot be set higher because that will cause investors to rethink their fixed income holdings. We have to have regulations to control leverage, trading, and capital usage all to get the market results that governments want. We have to finance sovereigns when private investors do not want to hold.

Do not get me wrong, there is a need for regulation in the financial sector and central banks have an important job to help stabilize business and financial cycles, but the goal should not be to replace the markets.