Wednesday, September 14, 2016


The equities markets are all over the place but there's a reason for that.  Continued uncertainty as to the mood of the Fed.   Nevertheless, these are pretty big swings we are seeing bot day-t0-day and interday as well.  The VIX has come back and with it a degree of uncertainty that will be settled one way of the other only by the Fed meeting next week.

The fixed income side, however, is a different matter, particularly the sovereigns.  The 50 year guilt has lost over 10% in the past few days.  The reason?  No reason at all and that is troublesome.  The Bund bounced into positive territory and yesterday the ten year raced to 1.73% before falling back to 1.67% today.  Again, no reason, no reason at all.  Unless...

I have been constant in my belief that this market for the past 10 years has had its feet firmly planted in thin air.  But this, like equities has been a trader's market, with little concern for fundamentals and having a complete reliance of fund flows.  Given the collective actions of Central Banks there was quite frankly no other stance that one could take, except that what may have been forgotten in the process is that in such situations where there is a single influencing factor, remove that factor and the reversal is often swift and brutal--often categorized as "a return to fundamentals"--rather than what it is; the punch bowl just getting taken away.  The most telling comment this week was that regarding the non-action by the ECB and the Bank of Japan: maybe they have figured out that what they have been doing hasn't worked very well.  They would be correct in so believing but if this is the case, hold on tight.  It's going to be a hell of a ride.  The rest of the week will probably give us a good insight as to whther the sentiment has truly changed.  Let's wait for the future to unfold.

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