The stock market is repricing itself to account for this increase in rates occurring in the bond market. The trade underway is what I have been referring to as yield curve normalization. Obviously with the ten year at 5.21% the curve is not yet normal; in the process of normalizing, yes, but not yet normal.
I was accused of whistling past the graveyard in a comment on Seeking Alpha on this issue. I don't think the reader had the full context of how I view these things.
The current downward action is smaller (for now) than the dip in February and the dip last June. If you have not thought about the fact the yields have been very low and the possibility that they might go up you might be as worried as my heckler appears to be.
The benefit of having a very simplistic trigger point to take defensive action is that you don't have to correctly interpret the current event or correctly predict what will happen next. It certainly helps to have your finger on the pulse of what is happening to be sure but it becomes less important.
This slight, and it is slight, dip may or may not be the beginning of the end (queue the ominous, foreboding music) but I don't know. I seriously doubt it but no matter, the market will either trigger my exit strategy, or yours (hopefully you have one), or it won't.
Hopefully this post conveys the dispassionate way I view these things. Down a little and down a lot are NORMAL market events. They are guaranteed to occur again. If you can get your arms around this certainty then there no need to assign emotion to this. You won't get out at the top, be disciplined and make the necessary changes as conditions dictate.
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9 comments:
Roger--I thought that Howard Simmons had a particularly good post today on RM (http://tinyurl.com/34mom7)regarding trend correlation among currency groups. There is so much generalization that we hear in the media (not you, though!) that to see this parsing out was refreshing.
Oh...and now that the Soprano's an 24 are over, I have no more "must watch" TV. (sniff)
lol, I have Howard's post open on another tab.
Summer is a time for sports, unless you are not a fan...but my wife has a couple of things on HBO....that John from Cincinnati made a good first impression, didn't it?
"Re-Pricification"
Can't wait until that shows up on investopedia.com
Roger, I'm the anti-sports fan. I had a boyfriend once that had this big surprise for me (no, not THAT surprise). He took me to a baseball game. To me, and I know that baseball has plenty of fans) watching baseball (or golf for that matter) is like watching paint dry. I didn't see John from C. Did your wife like it or were you being sarcastic?
I do have to finish Collapse (Jared Diamond's book) prior to the 23 (Book club)--so I'll just crawl into book nerd mode for a while.
TomK, you mean it isn't there already?
Leisa, I was not being sarcastic, I think I like it? There seems to be a lot going on I need to watch it again.
Fair warning it is from the Dead Wood people so it is wildly profane, wildly.
Could this the "pop before the pop"? A "pop before the pop? Yes, before the economic/market bubble pops there's an inner psychological bubble in our brains that pops." (Please pass the asprin) For more:
http://www.marketwatch.com/news/story/theres-no-shortage-signs-pointing/story.aspx?guid=%7B957EEBF8%2DF983%2D4AF5%2D9904%2D80950AF96B95%7D&dist=TNMostRead
Roger, isn't it a bit disingenuous to try and compare this current downswing to either 02/07 or 05/06, being that this swing has not yet bottomed?
I think it would be more useful to compare the first 5 days of those swings to the first 5 days of this one. Even then, what's the point, since we have no confirmation that the sell-off is over yet.
On another point, a few weeks ago I went looking for an inverse bond instrument. AFAIK, there are two mutual funds that target rising yields. With all the overlapping bond ETFs that have hit the market in the last 6 months, why is it that not a single one was an inverse bond ETF. I think they'd have attracted a lot of inflow this month in that one, instead of the paltry volumes they're getting in their me-too products. Wall Street really is full of the most unimaginative folks on the planet, isn't it? C'mon guys, where are the double-inverse bond ETFs?
Ryder has an inverse Long Govt Bond fund (RYJUX) that was up big today and up nearly 12% ytd.
I appreciate Roger's long-term outlook on the market and having pre-determined exit points and some hedges. In this vein, do most of you think that we are likely to continue seeing bond yields rise? One of the talking radioheads today mentioned that it is likely that we will see $5/gallon milk before long, and if groceries are a good indicator, inflation is much higher than 2-3%. Thanks for any feedback, Scoot.
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