September 13, 2010
– BREAKFAST WITH DAVE
As well, another bailout has come to the fore with Pennsylvania providing enoughfinancial aid to debt-strapped Harrisburg to ensure that it makes good on a$3.3mln bond payment today. The market has “muddle through” on the mind and this is being portrayed as bullish since it’s better than a double-dip scenario, buteven though there was tremendous media attention played to that prospect, arenewed contraction in economic activity was never really being discounted in themarkets (or in PM cash ratios at 3.8%). But, if you want to read how you can makea “muddle-through” scenario sound exciting, go to the article on the outlook onpage 1 of the WSJ — the U.S. corporate sector, after all, has $1.8 trillion of cashready to deploy at any time (talk about an old and stale story).
Another bailout:Pennsylvania is providingenough financial aid to debt-strapped Harrisburg toensure that it makes goodon a $3.3mln bond paymenttoday
As mentioned above, the combination of technicals, a supply deluge, andsome euphoric response to the data, as spurious as they seem, and perhaps to the latest policy announcements out of Washington, has left the Treasurymarket vulnerable to corrective forces. This too shall pass. Have a look atpage C2 of today’s WSJ for the reasons why (
U.S. Treasurys Ripening for Another Rally
If you can keep your head when all about you Are losing theirs and blaming it on you,If you can trust yourself when all men doubt you,But make allowance for their doubting too;If you can wait and not be tired by waiting,
At times like this, I find the opening lines to Rudyard Kipling’s “If” inspirationaland soothing. That and a tall glass of Dalwhinnie, 15 years old, on ice.In span of a few weeks, and based on a set of spurious set of economic data (like the fact that nine States had to guesstimate their level of jobless claims in lastweek’s “improvement”) a new consensus view has emerged that the double-dipscare of July and August was somehow just a bad joke not grounded in anything real, and that everything from housing, to employment, to consumer spending isdoing just fine, thank you very much. Let’s all take a deep breath and respect thefact that the equity market and bond yields both peaked in April, not unlike how they both peaked in 2007, 2000, and 1990 (and we can go on). These are veryimportant market signals in terms of what they are telling us about the futuredirection of the economy — future information transcends what private payrolls or transportation rate indices are telling us, which is only about the present. And, asis always the case coming off peaks in equity valuation and bond yields, themarkets do not move in a straight line down and volatility is the watchword.There is nothing untoward at all about the recent backup in Treasury yields. Thebond market is correcting from deeply overbought levels as net speculative long positions at the yield lows have been closed (the net speculative position is now, thankfully, flat).
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At times like this, I find theopening lines to RudyardKipling’s “If” inspirationaland soothing