Sunday, June 2, 2013

Mexican Stand-off

The dividend yield dipped below the 10 year bond yield last week, and the Nikkei hit multi-decade resistance.  These plus a re-balancing between stocks and bonds put a halt to the equity juggernaut.

What comes next is very important.  The conventional view is Bernanke loses control of the bond market, but that is implausible to me.  There is simply no way the man with the printing press is going to allow their member banks to be put in a catastrophic mark to market position.  Incomes have not moved in ten years, and if interest rates start moving higher, credit card, home equity, and junk defaults will sky rocket.  You can also kiss the housing market good bye.  Not going to happen.

My view is and always will be is interest rates will stay rock bottom unless and until the energy or food markets get away from them.  We are not there yet, however a new concern of the bankers is coming to fore that bears watching though, banks are slowly strangulating on QE forever as their net interest revenue is slowly drying up.  Not sure what remedy the banks have though, and I think they prefer this route over a uncontrolled back up in rates.  Plus, I think we are still deflating, and this back up in rates is going to stabilize around the dividend yield.

This leaves equities vulnerable though, as the Fed will protect the bond market over the stock market.  As most know I am expecting a move to at least the 50 on SPY, and that looks very likely.  Friday's sell off  was a bit exaggerated, so I am looking for a re-trace up to the 20, then for the market to continue down.  A bigger selloff is in our future as the third quarter earnings estimates and confessionals start coming into view later this month.  The estimates are way too optimistic.

So bottom line next week I expect a up Monday/Tuesday, and a overall down week for SPY, increased volatility, gold selling off to complete that bear flag, interest rates to fall, and miners to climb.  I have been short short SPY and long UVXY calls, short DUST, and long miners and some special little short squeezes.




1 comment:

  1. My view is and always will be is interest rates will stay rock bottom unless and until the energy or food markets get away from them. We are not there yet, however a new concern of the bankers is coming to fore that bears watching though, banks are slowly strangulating on QE forever as their net interest revenue is slowly drying up. Not sure what remedy the banks have though, and I think they prefer this route over a uncontrolled back up in rates. Plus, I think we are still deflating, and this back up in rates is going to stabilize around the dividend yield.Buy LOL Elo Boost
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