Yesterday we had a nice rally in the equity markets as we had a "risk on" day and everything is wonderful again. It seems that policy leaders and economic talking heads would have us believe that the situation in Europe is manageable and there is nothing to worry about. Stocks rally, we all take a deep breath and sigh that the collapse has been avoided, yet we can still look at one indicator and know that it is all a lie.
10 YEAR TREASURIES AREN'T IMPRESSED
In the midst of the risk on recovery we see that nothing has altered the trajectory of the 10 Year yield as it continues to dive lower. The other day we did hit a 1.65% yield but today we still are near 1 year lows at 1.642%. As I examined the rates I took a double take as I recalled that in January of 2012 I mentioned that a 1.50% to 1.60% level should be expected (CONFIDENCE LOST, 13 FOR 2012). Now that we are here, one has to wonder if a 1.25% or lower could be in our future? I also targeted $84.00 for the US Dollar Index and we are getting quite close there as well. If you haven't read the 2012 predictions post, you should as you will be happy to see that your humble host has been spot on with many of the predictions.
THE FED WILL TAKE ACTION SOON
The debt markets continue to signal that things are not going well and institutional investors fear losing their capital more than they fear not earning. Greek elections will soon come in focus over the next few days and will weigh heavily on the markets. Can you believe that the Fed will seriously consider adding more liquidity to this market in just a few days? I am hearing from many of my friends that they are refinancing and it would seem like this would be a great time. If you are one of those guys that must be able to brag about the lowest refi rate you received at cocktail parties, I would suggest you hold off as lower rates are still coming.