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After Worst Week For US Stocks Since August, The Big Story Is Actually Bonds
Stocks did something they're not supposed to do this week - namely, they fell.
And while that will invariably be the headline across financial portals this evening and over the weekend (something about "worst week for the S&P since August"), the bigger news is probably bonds.
Whereas people are usually joking when they say "this wasn't supposed to happen" in the context of stocks falling after an extended rally, some folks would tell you there's nothing particularly amusing about 10-year y
The fact that, after a massive injection of liquidity from CBs, yields are once again falling is more evidence that the “best economy ever” and the reflation narrative are bullsh*t. The global economy is leveraged to the nth degree, and when the dominos start to fall…well, those who are long risk assets are going to get slaughtered.
How do you construct a narrative that explains away all these policy failures in light of over valuations and massive debt levels??? I am of the opinion everybody is guessing about inevitable outcomes (or being uncommitted.)..Best laid plans of Mice and Men are usually equal……
The narrative is pretty straightforward, imo: CB policy is the main driver behind massive debt levels and overvaluation of risk assets.
Such brilliant yield curve control on the part of the biggest collection of PhD flunkies in history. The best models are nonlinear time dependent PDE systems that nobody can solve. But the boundary conditions tell a lot more than these people see. Paul Samuelson had the right idea over 50 years ago.
Actually it was over 70 years ago. Changes in behavior can best be explained by “people get bored”. This could explain the rise in popularity of MMT theory.
In addition to the curve flattening, it looks to me like the near term forward spread has inverted
Nobody knows anything! Virus scare could end up as yet another example of buy-the-dip or it could be the straw that breaks the camel’s back at a time when extreme positioning, extreme sentiment, extended growth/value, extended US/ROW, extended large/small leads to chaotic mean reversion and global recession. The running score for these two camps is 100 BTFD to 0 for Cassandras. As a Cassandra, it is so frustrating. Being English, cynicism comes rather easy.