The word of the day is crisis. As money flows out of emerging markets, such as Argentina and Turkey, the hedge funds that see opportunity in shorting US treasuries are, of course, joining the exodus.
As this happens, others who smell the blood in the far away streets begin to pull money out of US equities because, as we all know, the Fed is probably going to add another $10 billion or so to its tapering soon enough.
This, of course, will add to the emerging market “crisis” and, as well, it will push up interest rates, you know, the hyperinflationary rates that the doomsayers have said were coming. The chain reaction leads to higher yields, which draws more money from the market, which sends investors into buying up gold, and, for extra protection, sinking money into the US dollar. The “safe haven” play is in full force right?
Actually, all that seems to be happening is that money is coming out of equities and the short-term view of the market is negative, as seen in the rapidly rising VIX. Sure, gold is up a bit in the last few days, but it is not going through the roof and yields on US treasuries are actually down, showing that folks are not shorting them; they are buying them. And the US dollar? Flat, to say the least.
So what all this tells me is the full-on safe haven play is not in effect. Money is responding to the emerging market “panic,” but it appears it is waiting for a place to go. This supports my contention it is waiting to get back in the market when it senses the current crisis has past.
- The Conference Board Consumer Confidence Index®, which had rebounded in December, increased again in January. The Index now stands at 80.7 (1985=100), up from 77.5 in December. The Present Situation Index increased to 79.1 from 75.3. The Expectations Index increased to 81.8 from 79.0 last month.
- The German Gfk consumer confidence index has climbed to the highest level since August 2007, rising to 8.2 heading into February from 7.7 previously and topping consensus of 7.6.
Apparently, the chaos in Turkey and Argentina has not filtered down to the consumers in Germany and the US. Maybe it will, in time, but as of now, both believe that things will get better, which means, more impetus for economic growth. Just thinking out loud here.
As I write, the market is still flirting with a substantial decline, but an interesting thing is happening with my trades. Up until today, they have been tracking the downward slope of the market. Today, in the face of the latest phase of the “crisis,” they are actually up. Money appears to be moving into energy and technology.
So, hang on tight to the handle bars. The downhill ride can only last so long. Eventually, it will end and there will be another hill to climb.
Trade in the day; Invest in your life …
