It’s Friday morning, and it’s been a long week, so I am going to make today’s post short and sweet.
Yesterday afternoon, for the first time in a long time, the stock market broke hard. This morning, the selling has continued. That’s not surprising given its massively overbought condition.
What is surprising is the fact this decline has not resulted in any bounce in the bond market. Usually some selling in stocks puts a bid in the bond pit, but not today.
Have a look at the US 10 year treasury future versus the S&P 500:
They have both gone offered. In Europe, it is even more pronounced:
Investors have been hiding in supposedly “safe” fixed income for quite some time now. I can’t tell you the number of hedge funds who believe the US bond market offers terrific value against the coming deflationary collapse.
Investors often hedge for the last crisis instead of the next one, and not only is sovereign fixed income a poor place to hide, but offers a terrific shorting opportunity. I am short US Treasuries, but have a much bigger position in German Bunds and Japanese JGBs. Yet even I am somewhat surprised that in this down stock market tape, bonds aren’t rising more.
Maybe I am reading too much into some short term noise, but I am taking this as a positive sign for my position. In fact, I will look for some spots to add to the trade in the coming days.
Contrary to popular belief, the economic world is not coming to an end. German 10 year bund yields at 29 basis points is just stupid. It wouldn’t take much for them to double to 60. And even there, they would probably still be a great sale.
It’s not too late
The MacroTourist has tried to keep his nose out of the controversy that arises when politics is mixed with business, but I don’t think I can hold myself back any longer.
Before it is too late, please help me get Vermin Supreme elected.
I don’t know if it is the boot on his head, his plan to travel back in time, or his hamster wheel alternative power plan, but Vermin really speaks to me. And lest you think this is a joke, please click here to watch Vermin debate at the New Hampshire primary convention. Vermin is no newcomer to the game of politics. He has run for President in every election since 1992. Click here to learn more about Mr. Supreme and help me get him elected.
Thanks for reading,