Market Commentary From Russ Certo On Complacency, "Year End Illiquidity In The New Year" And Risk Correlation
From Russ Certo of Gleacher
All I needed to see was Jim Cramer on the tape this morning vehemently defending equity returns and risk asset performance. Seems to be quite a bit of complacency in markets and assumption of risk. I understand that given govt. policies, over time, risk assets ARE the place to be and serve to be the effective storehouse of quite predictable policies by governments and policy makers. If there is no guarantee of past performance in investment returns, one can consider near guarantee of tendency of governments to devalue debts through currency markets, entitlement cutbacks and more.
That being said, complacency looms. And after big moves in markets. Of particular note is emerging markets and commodity markets. We are all aware of near all time or all time highs in bevy of Asian or emerging currencies vs. USD and more industrialized G3. Consider that years ago, pundits argued that different seasoned metro real estate markets WEREN’T correlated and there was an agnosticism to leverage, hot money flows, and risk.
Not making some grandiose thematic market call here but the funny bone is tingling and the antennas are up ESPECIALLY as I see crude down 2.5% today, despite the near apostolic fanfare in the press recently in the likes of upward growth projections, upward earnings revisions and equity calls.
Why today would gold reverse by $40? And silver down 4$ and the entire complex go for sale. Why is the Swiss Franc off near 2% in a loss of quality flight? Why are all things risk correlated? Is it that UK surprised with largest manufacturing increase since early 90s and we, therefore, don’t need simulative central bank policies? Is it a significant risk reduction in front of the FOMC minutes at 2pm today? I dunno.
But I find the timing of flows to be interesting nevertheless. Mind you, the Fed appears to have been backtracking on QE2 since late November in a variety of explicit, implicit and decidedly coordinated uncoordinated snippet communications which removed CERTAINTY of scope and timing of QE2. If central banks were taking punch out of the bowl or markets anticipated such, why wouldn’t curves be flatter today? Or why would Tip breakevens show relative strength in tips which bucks the commodity plays? And why would Treasury belly outperform, particularly since we have a refunding announcement of 3yrs, 10yrs, and 30yrs on Thursday. Bond is piggy. I dunno but what’s up with the reversal in markets? Feels like year end illiquidity in the new year.
Stay tuned. Russ
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