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Bond Market Bashes Its Head: 'That's Gonna Leave a Mark!'

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In a world newly awash in confusion -- and in many regions, flat-out anger -- it's "the economy, stupid" that we all need to watch going forward.

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Every once in a while, we get to experience history, and it is likely that we did just see it in the bond market. No Virginia, there is no Bond Santa Claus. Thirty years of annual goodies under the fixed income tree has probably ended. Outflows from bond funds are taxing market liquidity and spilling over into other asset classes. The key is to ferret out which assets will have the most class going forward.

In a world newly awash in confusion -- and in many regions, flat-out anger -- it's "the economy, stupid" that we all need to watch going forward. Basically, up GDP is good. Down is bad. Sideways is confusing, so not good. The world needs some growth. We'll see.

We could also use a dose of decision-making by the world's leaders. And they will be getting lots of chances as there are meetings and summits and conferences and sessions all around the globe over the next month before the August recess. Fingers crossed we get some solid results. Toes crossed we don't get any regional implosions. And most likely, eyes crossed that we get more of the same status quo.

Click on the image below for an interactive version of this week's Wall of Worry, or scroll down for the text-only version and an explanation of how the Wall works.





QE: "This is the fourth and last time I'm going to tell you that I'm going to take away your candy! Unless, of course, you're bad, and then I will give it right back and then some."

UNEMPLOYMENT: Gonna be at 7% by December and 6.5% by June 2014 and all the clouds in the sky will be great big marshmallows by the fall, and the sun will be a giant lemon lollipop...!

US ECONOMY: Doing a lot of bragging and promising for a sub-2% grower.

INVESTOR SENTIMENT: Not even.

HOUSING CRISIS: There may be a lack of workers to build homes that most people can't afford or can't get a bank loan to buy. Sigh.

EUROPEAN ECONOMY: Iceland opts out of joining the EU. Hey, weren't they the ones who started this mess a few years ago?

FRANCE: Deficit target for 2013 looking off again. And that's off too-high, not too-low, for those of you keeping score.

US EXECUTIVE BRANCH: "Hey Ben, here's your hat. What's your hurry?"

SPAIN: Feeling good about already selling 65% of the debt it needs to move in the markets. Uh, it's the rest of it we're worried about.

VOLATILITY: "Gimme a "V." "V!" "Gimme an "O." "O!..."

HIGH-FREQUENCY TRADING:
Lloyd: Feel better?
HAL: "Summertime and the livin' is easy..."

CHINA: With great power comes great responsibility... great responsibility to provide a great amount of liquidity when your markets are freaking out.

GLOBAL ECONOMY: Hard to know who's driving this thing when there appears to be four different steering wheels.

JAPAN: Fastest bull market to bear market reversal I have ever seen and still the best performing market of the year. Now where's my decoder ring...?

DRAGHI: What do you mean, Ben Bernanke gets to retire?!

SEQUESTRATION: A few more decades of this and we might even get a balanced budget in the US.

BONDS: Pop goes the weasel!

SYRIA: Hell in a hand basket. A really big, centrally-located hand basket.

CENTRAL BANKS: "Don't stop me now, I'm having such a good time, I'm having a ball!"

TURKEY: After you calm those riots you have flaring around your country, would you look in on your neighbor to the southeast? 'Cause they are scaring all of us.

THE NIKKEI: Is it a stock market or a roller-coaster... or both or neither?

SHIBOR: The Chinese version of LIBOR but even more mysterious and scary.

BRAZIL: One million people protesting for humane mass transit and what do they get? A billion-dollar Futbol stadium. Goooooal...not.

ETFs: The mad science of re-hypothecation created a few bond ETFs that got out of their cages for a few hours last week. Time for new locks, Igor!

DEBT MARKETS: What do you call it when bond bulls turn tail and stampede in the other direction, severely reducing market liquidity? I think you call it, "Last week."

COMMODITIES: Thrown away like last year's calendar.


What Is Lloyd's Wall of Worry?

by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money managers.

Typically the term "wall of worry" refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.
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No positions in stocks mentioned.
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