Wed May 29, 2013
US Treasurys Get Battered
WSJ Page C4
Model Borrowers Bite Back
The prices of bonds issued by Apple, Merck, MSFT and nike and MCD tumbled along with Treasurys
Stocks Discover a New Source of Fuel
This article notes that the move out of defensive stocks, utilities and telecommunications have driven stock averages higher.
This means that investors are now chasing general stock averages higher while shedding utility and bond investments. We have been predicting this. This weekend we posted the bond math showing that a 30 year Treasury had lost some 19% in value just since last August.
At top the move out of REITs gets underway, in the middle Treasuryes topped a month ago, and at bottom the exit from utilities is underway.
US Dollar
The US Dollar has yet to take out 84.5. If it does expect bonds to fall further along with gold, if it pulls back we might finally get a bounce in gold.
The bottom line is that investors are replicating the experience of 1987, which we showed a few posts back. As more and more crowd into stocks, well, it becomes a crowded trade. As stocks move higher dividend yields move lower, and bond yields move higher. This will finally set up an irrational valuation. Re adjusting such valuations in the short run leads to a crash as it did in 1987.
That said the Australian and Canadian Dollar are really getting oversold, let's watch closely for a potential short term bottom.
Comments