The markets are very good these days at not reacting to any unsavory news. My colleague just wrote about his amazingly rare one-way bet (read: Finding a one-way bet: Rare but do Exist). The markets are not one of these one-way bets, contrary to what many, many, investors believe.
In more ‘usual’ times – the markets hate uncertainty and are skittish with bad news, especially that which begets more uncertainty. We are at the top of the uncertainty meter - yet, the markets are as calm as Lake Placid.
I wrote some time ago – June 30,2020 – about how the markets were in ‘suspended animation’ (read: The Markets are in a Suspended Animation Perpetuation a Denial of Reality) and I firmly believe that we have not exited that sense of denial. This denial is borne out by the rising number of Covid cases, worldwide.
It’s clear we are not getting a stimulus deal anytime in the immediate future – and this should be rattling markets – it’s an immense amount of uncertainty. But it’s not. Also interestingly, all of the asset classes supposedly affected by the promise of more stimulus – Gold, Treasuries, Equities – are not moving in the opposite direction sans stimulus. Good news is good, bad news is ignored.
So what does this tell us? There is now so much uncertainty around – Covid, elections, bi-partisan paralysis – that the fear hasbecome so great - it’s created inertia. Frozen from fear.
To me what is particularly interesting is the recent spike in Treasury Yields and the immense speculation taking short positions against the 30yr. Yet – there is no stimulus, no roaring inflation and no struggle to sell new debt into the market. Yields have already softened – consistent with our thinking (read: Treasuries Blow Out: We don’t Agree – Oct 22,2020).
We at MacroTOMI believe that something has to give and that the markets are setting themselves up for a big ‘Aha’ moment. Investors are sitting on the sidelines until after Nov 3 in a wait and see holding position. But the positive panacea that the markets are wishing for won’t come quickly – regardless of the election outcome.
More and more pressure will eventually force the markets to move – such outlets often come swiftly and ‘unexpectedly’. Buckle up.
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