US equity markets are down triple-digits this morning after the long weekend, the dollar is higher (having erased the post-CPI dump), and so are Treasury yields, but as former fund manager Richard Breslow notes, the world does not appear to be careening towards the cliff's edge as he notes " investors and central bankers are realizing anew that two-way markets don’t have to necessarily be metaphors for out-of-control train wrecks that will plunge the global economy into havoc."
Today has a distinctly upbeat feel to it. That’s rare enough, so I’m going to enjoy it while it lasts. Or for the next hour, whichever is longer. Equity markets have been moving around, but the action isn’t couched in dire terms every time there has been a dip. The coming bond auction deluge is being discussed in terms of appropriate concessions rather than who’s going to want all of this stuff.
The dollar is having a good start to its day and, even if most think it’s some sort of counter-trend rally, it just doesn’t feel right somehow to focus here and now on the long-term implications of the twin deficits. I’ve yet to read a new article suggesting USD/JPY at 100 is coming soon to screens near you.
The Bloomberg commodity index, after quite an impressive rally last week, is now back into very familiar territory. Perhaps to a level that both importers and exporters can live and thrive with. Even gold looks like traders have decided the world may be an unstable place but levels approaching $1,400/oz represent a degree of anxiety we’re just not feeling.
This really does feel like a moment worth savoring, because I don’t have to try very hard to find people only too happy to assure me that the good vibes won’t last. Yields too high, equity multiples that won’t keep up, political instability. Potential bummers all. For my money, good things, as well as bad, run in multiples and I wouldn’t be the least surprised if a long-lost friend just happened to return from some journey to the far-flung reaches of the world.
So why the mood swings? I have a theory. The stock market had a real rough start to the month and the world didn’t fall apart. It wasn’t so much that the dip, such as it was in retrospect, was bought, but for the first time in way too long, investors and central bankers are realizing anew that two-way markets don’t have to necessarily be metaphors for out-of-control train wrecks that will plunge the global economy into havoc. We have volatility to thank for this dose of reality. Stocks are down today. They could even be down tomorrow. That doesn’t mean we have to gather round and wail about what the authorities must do about it. And it shouldn’t be lost on people that the NFC did take the Super Bowl.
There are going to be a record amount of bonds sold this week. Yields are getting near 3%. There are a lot more people debating whether this level is a great buy or the start of the global reflation than whether the economy can handle the shock. So far the only outrage, beyond feigned, is how little of the rate increases have shown up in savings account balances. But there’s been no holding back small business optimism.
As for the dollar, just ask yourself why it has been so weak. There’s no shortage of narratives which include global growth and other central banks playing catch-up. Those are positives. The U.S. can be raising rates and growing and still have a weakening currency. We’ll see if those opposing trends can continue to coexist. Actually, if I were short dollars, I’d feel more comfortable with the reserve diversification and geopolitical arguments because those at least have a better chance of sustaining themselves for the long-haul.
This has been declared a “no grumpy old men” morning.
Or maybe it’s the optimism of feeling youthful again as markets are desperately trying to act like they did when we were young and didn’t know any better.