Back At The Gates

Submitted by Mark J. Grant, author of Out of the Box,

It is Mr. Green in the library with the candlestick.
That is the clue; what are you going to do with it? This is a real world portrayal of the financial markets these days. The economy languishes in the United States. The economies of Europe are floundering or in serious decline. The equity markets are at all-time highs. The Fed, including calls and pre-payments, is probably pushing somewhat over $100 billion a month into the system. Bond yields are not far off their lows and the compression in risk assets continues unabated as the money must be put somewhere. It is a disparate world.
We were all taught that the markets eventually get back to fundamentals. It is not that we have forgotten this; it is that the supply of money has trumped the notion. Yet we amble on because it has been the winning strategy and we play to win.
I warn when appropriate because that is the main tenet of my commentary. In a two percent ten year Treasury environment making a mistake is a very costly affair. When yields are this low it is not "better to be safe than sorry" but "better to be safe then dead" as the amount of time that it will take to make back any mistakes could end you and your firm given the duration of any correction that you might attempt.
It is not that one market is in a bubble it is that they all are in a bubble. Chairman Bernanke and Lord High Draghi hold their small piece of plastic and blow hot air and the soap bubble enlarges around everything. Nothing is forgotten, nothing is spared; everything is encased.
Cyprus was not a thought in anyone's mind a month ago. Many may not have known exactly where it was located. Then it takes center stage and tosses off infection into the rest of Europe. Every fingerprint may be different but to have a fingerprint you must have fingers and everyone on the Continent has them and uses them for pointing, waving and utilizes them for a number of specific and special gestures.
It was never Armageddon or Apocalypse that caught my attention but caution and wariness of idiocy. You can one-off Cyprus all you like but stupidity was the Master of Ceremonies at that show. Consequently I stare at the world and wonder what lunacy might come next. 
It is not that the world is devoid of crises. It is that the supply of money acts as a painkiller and that the markets have become mostly numb. Yet still I man the watchtower. Yet still I peer at the Barbarians. Cyprus was the latest foray. Never fear; the Barbarians will be back at the gates.