Morning Note: “Tremendous Discipline” Required

Massively oversold treasuries are rallying, yields tanking (whew!) mightily, as I type this morning. And, therefore, after their mini bloodbath, interest rate sensitive tech stocks are rallying nicely as well. 

While that’s enough to goose the major averages (Nasdaq and SP500 in particular), given its heavy representation therein, tech is pretty much all that’s working this morning.

Here’s how the rest looks at the start of today’s session, best to worst:

Utilities -0.12%, Eurozone -0.14%, Healthcare -0.18%, materials -0.44%, financials -0.62%, ag commodities -0.77%, gold -0.77%, emerging markets -0.77%, consumer staples -0.79%, Asia-Pac -1.12%, base metals -1.17%, energy -1.95%, silver -2.32%, oil services -2.32%. 

I’ve stated herein numerous times over the past year that stocks, and therefore the Federal Reserve — given now massive leverage against stocks, and what amounts to a mammoth debt bubble virtually everywhere else — simply can’t do substantially higher interest rates.

Well, of course it’s not just the U.S. central bank that bears such burdens, we’re talking global phenomena. 

Therefore, others are already stepping up to the plate, either in word or in deed: The Bank of Japan waded in last night and bought up ETFs, the Reserve Bank of Australia announced an emergency round of bond purchases (QE), and the European Central Bank head said this morning that if rates keep rising they’ll be stepping up support (QE) as well. Make no mistake, this (and the oversoldness) largely explains this morning’s rebound in treasuries and tech stocks. Interesting that not much else is going along for the ride just yet…

Markets move very rapidly these days, therefore, without scrolling back up and changing numbers that’ll likely change by the time I start typing this sentence again, I’ll just keep running with what the ticker shows (for example, the SP500 was nicely green when I typed paragraph 1, it’s now dipped into the red). 

Asian equities had a rough go of it overnight, with 11 of the 16 markets we track closing notably lower.

Europe’s a total mess this morning: 17 of the 19 bourses we follow in the red as I type.

U.S. major averages are mixed: Dow down 305 points (0.97%), SP500 down 0.49%, Nasdaq 100 down 0.04%, Russell 2000 up 0.21%.

The VIX (SP500 implied volatility) is up 2.04%. VXN (Nasdaq i.v.) is down 0.55%.

Oil futures are down 1.72%, gold’s down 1.62%, silver’s down 2.91%, copper futures are down 2.03% and the ag complex is 0.80%.

The 10-year treasury is up (yield down), and the dollar is catching a huge bid, +0.55%.

On most of the down days of late our core portfolio has enjoyed impressive results relative to equity markets. Of course not being entirely correlated to stocks (critically important right here) can also work against you at times (when comparing to stocks). Today (at least early on) is a case in point. As I type our core mix is down 1.19% on the morning. 

Our leading laggards are oil services, energy, silver, banks, gold and financials.

Next up, our weekly macro update. Stay tuned…

I can’t emphasize enough the point Leon Levy emphasizes in the second paragraph below — from his insightful book The Mind of Wall Street:

“It will not be easy for the apostles of the so-called new economy to nimbly adjust should the market decide that quaint old-economy obsessions such as earnings and dividends are important after all.

The message is that mood or investor psychology is as important to markets as is information. It requires tremendous discipline to apply this understanding to one’s behavior.”


Have a nice day,


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