Wednesday, July 13, 2011

Sell-off, Disconnection and Negative Yield?

The way I see it, we are setting up for a sell off in the equity markets and that any event driven dollar volatility will end up reversing hard and crushing the EURO. The reality is that the EURO is trading at 1.4236 right now versus the dollar at 74.79...given recent relative prices the EURO should be trading at 1.4486 right now to offset with the dollar here. That is  HUGE under performance. These markets are coming unhinged and the central planners are planning something ugly indeed. It looks to me like there could be an event driven move selling both the dollar and the markets off...followed by a mammoth reversal in the dollar and a disconnect in the risk asset markets...ironically, it seems to me that the world does not have a lot of great choices...and that makes negative yield on US treasuries look better than a hell of a lot of the alternatives...and it sounds to me like a reasonable way for the US to reduce the whole politcal theatre regarding the debt cieling and default...anyway you cut it, the 5, 10 and 30 year bonds all made new highs (lows in yield) over the last few days as I had indicated I thought would happen in precious posts.
So, at this time, I have less than two hundred short contracts on the index futures left right now in my portfolios and am nearly flat - just waiting for systems to trigger new entries in the currencies and indexes. Right now, after a very rewarding two months, watching from the sidelines and awaiting any event driven volatility seems just fine to me.

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