Tuesday, August 03, 2010
Plenty of debate out there over whether we are in a deflationary growth period or a deflationary slowdown. Is the "I" word verboten these days? But there are some odd things out there and we are pondering the following:
- Bonds and equities both rallying.
- Copper and all things China related were trading up as if we had a stimulus package coming but by this afternoon Mrs Market felt very deprived of stimulus.
- Yen has not been weakening despite a 10%+ rally in equities in the past month.
- Platinum, palladium all up strongly but car sales pretty weak everywhere except for luxury vehicles.
- Why are the Chinese buying Japanese short term instruments? The Japanese fin min don’t even know. TMM discuss all sorts of "what if's", such as it being a precursor to stepping into Japanese equities?
- Northern Rock's 'Bad Bank' Makes a Profit, 'Good Bank' a Loss...
- JPM's open honesty over problems in their commodity unit. Huh? David Cameron advising them on PR?
We would like to think that this is still a summer squeeze and that the pendulum of expectation has swung too far to the deflationary side in this summer vacuum of liquidity. But we are wondering if the following equation works..
Positional squeeze + over-expectation of deflation + Equity/bond spread + a PCE catalyst + Voldemort's concerns - Fed's Bazooka = UST dumpage