I think we are about to see a massive shift in sentiment which will be manifest in global markets from stocks to bonds to currencies. This shift could be the result of a financial crisis, or could simply arise from a 'final straw' being laid atop the mountain of financial problems thus far.
Either way, the upshot will be to spur fears of deflation
. Right now there's a lot of lip-service about the topic but zero
genuine angst. Witness the relentless obsession with the Fed, as if whether they go 50 or 25 actually makes a difference?!!
Eventually (and i believe much sooner rather than later--call it feminine intuition), investors will realize the Fed now has only 300 bp to play with and the credit bust has barely
begun! At some point, investors will do the math. Hmmm... if our financial institutions and bond insurers are already unable to function, with delinquency rates barely
up from record lows
, what's going to happen when things really get bad?
On the bright side, at least the fed is trying to get the credit wheels turning. In the Eurozone the ECB is taking their economy on a Thelma & Louise roadtrip. Pedal to the metal, they are speeding straight over the precipice.
Again, all of this seems patently obvious. But talking about deflation in the abstract is very different from living it. From a macro trading standpoint the standard relationships will break down. Many already have. Like bonds
, the yield curve
... and so on. I expect the euro
will soon begin to trade inversely with rates (eg., the tighter the ECB the weaker the euro, because it virtually ensures they completely disintegrate). Meanwhile, in the US, the Fed, running out of room to cut short rates, will shift to the long end and US treasuries will move well below 3%. This isn't a statement about the value of Treasuries. Heck, there wasn't any value in Treasuries at 6%!! But that's not the point.
Stay tuned, because things are about to get very very interesting.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.