The problem with being a contrarian is the determination of where in a market cycle the “herd mentality” is operating. The collective wisdom of market participants is generally “right” during the middle of a market advance but “wrong” at market peaks and troughs. There are plenty of warning signals that suggest that investors should be getting more cautious with portfolio allocations. However, the “herd” is still supporting asset prices at current levels based primarily on the “fear” of missing out on further advances.
"If one were concerned about the historically low 10-year Treasury and commercial real estate capitalization rates, perhaps because of potential financial stability concerns, the balance sheet composition could be adjusted to steepen the yield curve." - Boston Fed President Eric Rosengren
The Bank of England’s inept monetary policies under Mark Carney’s governorship seem certain to expose the fragility of fiat sterling to wider public attention and skepticism. If the consequences weren’t so serious, we might thank him for unwittingly toppling the status quo. But the inevitable crisis, many times worse than that faced in 1975, cannot be embraced even by the most extreme financial masochist. This is why people in Britain and America will increasingly find solace in gold.
The big day has finally arrived: starting today, many prime money market mutual funds (those that invest in non-government issued assets such as short-term corporate and municipal debt) to float their net asset value. More importantly, these prime MMFs are allowed to delay client withdrawals under adverse market conditions.
Today’s release of September’s FOMC minutes comes at a bad time for fragile markets and will intensify risk-aversion, according to Bloomberg's Mark Cudmore. Based on the rhetoric from Fed officials in the days following the Sept. 21 decision, the minutes will emphasize that the committee are keen to raise rates, and that all meetings are live -– including November.
As the powers-that-be play whack-a-mole with various systemic risk indicators, desperately tamping down contagion concerns, amid no progress in strengthening the world's most systemically dangerous bank; we warned two weeks ago of yet another canary in the coalmine of Deutsche Bank's demise (that no one was looking at). This week, that canary... died.
It's probably nothing but... Saudi banking stocks have been halved in the last year and crashed to their lowest level since the March 2009 lows. Middle East stock markets began the week with a big downturn as China comes back from its Golden Week holiday...
Typically, when we think about potential threats to the dollar, we think a different reserve currency might take over; or that foreigners might dump their dollar holdings... but there may be a much bigger elephant in the room...
The bond market selloff of the past month or so, which has apparently fizzled just as Alan Greenspan was assuring the world it was only getting started (once more preserving for posterity how little he knows about bonds, interest rates, and money, as if knowing anything about any of those would be useful to a central banker). There is no bond market riddle. As each curve gets squashed by righteous pessimism, they together indicate nothing good about the near-term future.