It’s All About The Free Money (In the Markets)

We have clear roll over of leading indicators in recent weeks and a deterioration in housing, jobless claims, durable goods orders today and bad consumer confidence reading.

Seems that the markets do not appreciate the data. Things that move the markets are only FED policy on rates, dollar strength and Greece debt problems. China credit tightening in forgotten for the time being (at least to the next announcement).

All dough I’m convinced that the economy is deteriorating  almost everywhere except in China and in their commodity based economy satellites I have only a small exposure to the markets (via a June SPY 105/106 put ratio backspread) to keep me interest for the markets. I do not have a clear conviction short term.

Central banks and governments are in a though spot now. They have to keep some optimism in the general public that the economies are recovering, all dough many of the key people are aware that they aren’t. They know that the monetary stimulus must continue and rates have to be kept low, but because of their talk on recovery the investing (or even general) public expects a start of monetary tightening because of unfounded fear of inflation and talk of excess bonuses and similar stuff…

What do I think it will happen? We will have a lot of weak data in the coming months. I think the BOE will be first to start with the QE 2.0 and will be soon followed by the FED MBS & agency buying program 2.0. No chance of a key rate raise this year (or even next), the inflation will be weak or we will even have deflation.

In that light, the U.S. dollar will be strong, the demand for U.S. treasuries will be strong, the curve could flatten. Commodities will be under pressure because of strong dollar (and weak demand), but I do not see possibilities of some major moves.

It’s just wait and see now.

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This entry was posted on Thursday, February 25th, 2010 at 6:18 pm and is filed under Markets. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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