Our Manic Markets

The markets are manic.  It is rare that we have so many large moves in a short time.  Consider these graphs:


Gold is rising since the bailout announcement.

So are crude oil prices.

And the US Dollar falls.

Swap spreads rise.

And mortgage rates rise also.

Forces larger than the US government are acting on the world economy, leading to a partial repudiation of the US Dollar by some foreign entities.  This leads to higher implied volatility in the equity markets, and higher credit and swap spreads.  Commodity prices rise also. Would you want to own the securities of a country that overpromised what it would deliver in terms of debt repayment?

I think not, and the present economic environment is decidedly hostile to fixed US Dollar denominated assets.  Play in the US dollar with care… the short trade has much to commend it in the intermediate term, though the short term is cloudy.  Also, be careful on the long end of the US fixed income market… it could deliver some significant negative surprises.