Email this article | Print this article
This article is an excerpt from David Rosenberg, Gluskin Sheff, in today's Breakfast with Dave, May 5, 2010.
Market Thoughts
Head for the hills! James Paulsen on CNBC today uttered the Bernanke-ism “contained” twice in one sentence to describe his view of the risks in Europe. Yikes! Jason Trennert then went on to describe the positive fallout from all this because the events overseas will keep the Fed on hold for longer (well, the Bear Stearns collapse forced the Fed to actually cut rates — we should have all been extremely bullish in the opening months of 2008 based on that logic).
It was quite the session yesterday. The VIX index soared another 20% to an 11-week high. The equity market suffered its worst pounding in three months (pharmaceuticals was the best performing sector as investors rotate to defensives from cyclicals), though the S&P 500 did find late-day support as it bounced off the key 50-day moving average. We shall see if this technical level holds but investors are now seeing that the market is in fact not a game of straight-up as has been the case for the better part of the past year.
The U.S. bond market has caught fire — just six weeks after receiving a death sentence from the intellectual elite as the yield on the 10-year T-note, back then, made yet another unsuccessful run at the 4% mark (just days after my debate with Jim Grant). Today, the 10-year note is sitting at 3.57% and the long bond is at 4.40%, both setting lows for 2010.
BONDS HAVE MORE FUN
Make no mistake, investors are getting hit far worse on their long-put positions on Treasuries right now than their long-call positions in equities (we haven’t even seen the big short squeeze yet in bond-land — this should get exciting). So far this year, it looks to as though total returns on long Treasuries are bordering on 5% — over 14% in Euro terms too!
Incredibly, in Canada, the yield curve steepened as the front end rallied to levels prevailing before the “hawkish” Bank of Canada policy report last month as two tightenings were taken out of the market (and the Canadian dollar paying the price as it finally heads toward its fair-value estimate of 93-94 cents). The Canadian bond rally got an extra boost from “dovish” comments out of Finance Minister Flaherty regarding stubbornly high unemployment.
Source: David Rosenberg, May 5, 2010
