Wednesday, March 21, 2012


I must begin this post with an apology and an explanation.  Unfortunately I have not posted in almost exactly one month.  I have had a family emergency that has required almost all of our attention.  Events like these make me realize how important family is and at the same time how much the blog has connected me to so many great people that I've never met in person through this thing called the web.  Another great aspect of writing the blog is that it does connect me with the rhythm of the market.  When I am not writing, I feel like I am not in sync with what is going on.  Things seem to be calming down with the family situation, so thanks for coming back to read posts.

Did you see that huge move in 10 year treasury rates?  All I can say is, "Wow!"  Does a move like this suggest that the treasury is done and is going to be trashed as an asset forever?  No, in fact, if we stick to the plan that I laid out in Confidence Lost - 13 for 2012 this move in treasuries is simply a warning to us that we are getting close to the next major move in markets that I suggest will  happen in May of 2012.

This move in treasuries is simply a wake up call that there is a market force out there that could shatter all the serenity and peace of an equity market that goes up every day.  A 30 or 40 bps move in treasuries is a massive move and I can only imagine the damage it did to currency traders.  Remember back about a year or two ago when we discussed the Fed's balance sheet DV01 or their risk to a 1 bps move?  I believe the DV01 at that time was close to $1.5 Billion.  So last week's move could have cost the Fed around $45 Billion in losses or more based on those old estimates.  That has to leave a mark.

Just like the small tremors that for months have preceded the big 7.4 magnitude earthquake in Mexico yesterday, moves like these in the treasury world are indications that some stuff is brewing.  I anticipate that the equity markets will shrug off this move in yields and push higher for another month, but this should shake us and cause all of us to begin examining positions that have made great gains in the last 6 months.

Oh yes, what a mess.  This isn't going to get better anytime soon.  Where is our political leadership?  Where is the outrage for Syrian atrocities against its people?  Syria is even more critical as a removal of that regime further isolates Iran which is clearly in the world's interest.  My guess is that our administration will not move to take a stand on Syria since it just makes too much sense.


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