Having had our fill of the E-Z by 7 am our time, let’s re-focus on the good ‘ol US.
Key to understanding price change just ahead, always, is to understand consensus flaw. We have known for several weeks that economists, behaving as a crowd - holding hands, crying out together in the dark - have mis-understood the consumer and labor sectors of our economy. Recent releases have of course played out nicely; yet our rule still holds - if there are to be any surprises ahead, these will be to the side of vigor, not weakness. Simple.
Despite the US downgrading by one of the now thoroughly discredited rating agencies, despite this awful reality, world investors cannot own enough of our IOU’s. This has abated what would otherwise be increased tension in our credit markets.
Not understanding what the E-Z will cook up next, we want to avoid out rights like the plague. But our sense of risk and events tells us that clients should at least retain reasonable strategy to fit our view. The curve of course is one. A cooling of E-Z events and it will expand abruptly; any further Fed tinkering will only further such an expansion.
Robert Craven
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