This morning I had a feeling. The feeling was quite subtle, mind you, almost non-existent really. Nevertheless, I felt it, and, as I am wont to do, I contemplated the intended meaning.
The feeling arrived when I opened my trading platform and saw all three indices (DIJA, S&P 500, and the NASDAQ) in the red, solidly in the red to be more precise. Something seemed amiss. Perhaps it was that my brain is now used to seeing some green every day. A simple explanation, really, but not a likely explanation for the inkling of something amiss.
Could it be the media had some bad news to hug – retail sales off for January? Here comes the “is the recovery self-sustaining, able to stand on its own two feet” blah blah. No, I have a feeling about that, but you already know my sentiment there, and it is not subtle.
No, this feeling spoke to something not so obvious, something deeper in the psyche of the market. I thought that perhaps I am a bit numb to the market, as it seems many others are in these recent days of low volume and somewhat flat movement. Perhaps, I welcomed the solid red as some relief from the notion that the market cannot go up and up and up without some form of consolidation, or correction, if you please. No, not really, as I understand the market will consolidate, that the market will correct at some point in near future. Perhaps this is the beginning of that, I thought, and maybe I am sensing that. Perhaps, but my feeling touched a different sensibility, a feeling something was happening, something of which I am not aware.
And then, I came across the analysis below. Suddenly, the subtle feeling became explicit and clear – slight fear. Could it be that I have focused too myopically on the U.S. economic recovery? Could it be that I am not seeing the bigger picture yet? Yes, I have been tracking the global economic recovery, and yes, I am aware of the global economic picture, but to be honest, I am much less aware of the intricate relationship between interest rates, inflation, and the global economic recovery. Simply, big things are afoot, of which I have little awareness.
We have noticed some abnormal trends in sovereign debt rates in the last two months. For example, the yield curve in China is now even more inverted, with short-term rates ahead of long-term rate, suggesting that economic growth in China may slow somewhat in the quarters ahead. In India, despite high short-term rates, inflation remains a problem (+12% in 2010) and long-term rates continue to tick higher. The yield curve is inverted in Brazil, too, as inflation (now 6%) accelerates … In Southern Europe, which ignited the sovereign debt crisis a bit more than a year ago, long-term rates remain elevated, though they have trended lower in the last month. Given high budget deficits (9%+ for Spain and Greece), we think the crisis may flare up again this spring.
If the European debt crisis returns, the market will suffer. Perhaps a bit of fear is returning to soften the optimism. Perhaps, I sensed this subtle undercurrent of fear in the market. Hmm… something to think about, and you know I will.
Trade in the day – Invest in your life
