"Risk is High"
I put the title of this post in quotes because as blog readers know, I (and my newsletter) have been highlighting these words for several weeks now... 'risk is high', 'risk is rising', 'code yellow', 'code red', etc.
Sentiment has been predictably going in a positive direction off of the unsustainable misery of October, 2008 to March, 2009. This sentiment shift has been boosted or better yet, aided and abetted by global policy makers (those in the US front and center) in a desperate attempt to get somebody, anybody to pick up the ball and run with it. Well, run with it they did.
But it is important to determine who sold the long term US Treasury sooth-saying of Larry Summers and the highly intellectualized yet quite possibly naive Ben Bernanke (a man I do not consider an 'evil genius' like his predecessor). So, here is one of my charts that attempts to quantify the who's and what's. You can see that smart money sold long term bonds (TLT proxy used here) upon getting the supposed 'okay' to own them from policy makers.
What did they buy? Well, all that newly created debt monetization made for a great trade into low quality debt (HYG is the proxy here) with the fairy story in place that the government would backstop the entire financial world. It is a good bet that whatever dumb money is capitulating out of treasuries now that the damage has been done, is buying all sorts of risk at the behest of the stock market and commodity touts now on auto-pump. That risk includes the garbage held by HYG.
This post will not go into the mechanics and 'signpost' indicators NFTRH is watching, but suffice it to say, the game plan remains on track. Things continue to make a lot of sense to market participants who are able to tune out the cacophony of bull horns blowing in various commodities, stock markets and debt markets. It is time to consider the value of being a contrary sort because, with the encouragement of the likes of Larry Summers, it now looks like things have nearly completed their swing to the opposite and equal end of the spectrum from Q4 of 2008, when I became so bullish I could taste it. Now, I have a different taste in my mouth.
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