David's Feed
Sep 24, 2009

Fed Starts to Remove Candy; Market Demands More

The stock market’s penchant for emotional reactions that remind one of a roomful of two-year olds can never be underestimated. Major world central banks are pulling back on their efforts to provide liquidity to the financial system, and the U.S. equity market has flipped out, with stocks falling sharply after the news.Volatility has spiked as well, even though the banks’ move is largely administrative, with demand for certain borrowing programs already diminished. Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ notes that “demand for dollar liquidity at banks offshore is sharply reduced now that the crisis has blown through. The amount of dollar borrowing in offshore centers is down sharply.”

But equity markets aren’t so easily swayed by reason. The move in stocks follows a similar sell-off late Wednesday, after the Federal Reserve’s statement, which intimated that it would start to reduce the tools that it has employed in keeping things afloat. Joe Saluzzi of Themis Trading pegged the reaction as a predictable one from the notoriously self-interested stock market, saying that “now all the money printing crack addicts who are waiting for more of it are not getting their money printing and they are going to throw a hissy fit.”

Sep 17, 2009

Hair of the Dog Rally

The old lore about the best way to cure a hangover is with a few more nips of whatever it was you were imbibing the previous evening, commonly known as “hair of the dog.”

The extension of this rally in stocks and just about every other asset identified with risk feels like a hair-of-the-dog situation. Between 2003 and mid-2008, easy flow of capital facilitated revelry in stocks, emerging markets, real estate, bonds, and high-yielding currencies.

Aug 26, 2009

Can Stocks and Bonds Celebrate Together?

So who is right and who is wrong?The stock market has rallied by more than 50 percent in the last five months. But bond market yields currently hover around 3.4%, and while that’s nowhere near close to the crisis-induced record low reached at the end of 2008, a graph of the 10-year note’s yield shows that it remains lower than almost any point other than when prices spiked in the wake of the Lehman Brothers collapse.

Ten-year yields remain in a tight range.

Equity investors would rightly point to better housing data and stronger economic indicators as a sign that things are looking up. The bond market, meanwhile, continues to worry that the outlook remains grim. Yields have been bound in a range between 3.4% and 4% since late May, despite the dark warnings from those “bond vigilantes” that believe crushing U.S. debt will turn off our major foreign benefactors.

    • About David

      "David Gaffen oversees the U.S. markets team, having joined Reuters in May 2009. He spent four years at the Wall Street Journal, where he was the original writer of the web site's MarketBeat blog. He is a frequent guest on Reuters TV, and has appeared on CNN International, Fox Business, NPR, and assorted other media and is the author of the book "Never Buy Another Stock Again.""
    • Follow David