U.S. Treasuries Dooming Equities ~ The Risk Averse Alert

Tuesday, August 03, 2010

U.S. Treasuries Dooming Equities

According to Cramer, yields on 2-year U.S. Treasuries are an "outrageous ripoff." No Jim, they're an outrageous clue. To wit: we have us a dysfunctional credit system! And to your beloved equity this means doom.


Were better yields and the possibility of capital appreciation to be found in stocks — were falling bond yields a boon rather than a bane — then those more speculative sectors of the market (such as are fairly represented by the NASDAQ Composite Index) would be leading the charge higher, not lagging badly. It's an "animal spirits" thing. The stock market needs these.

That NASDAQ in fact is notably lagging (yesterday it failed even to break above its July peak, let alone its June intra-day high) suggests money entering the stock market over the past month already is chasing yield ... at least for the most part. That's what's being fed.

When was the last time this was sound, long-term strategy? It was well before there ever was a shadow banking system. In fact, back then there existed something of a more robust physical economy capable of generating a working capital surplus ... and not so many trillions of gambling debts acting as an albatross.

With this in mind, then, there is every indication macro circumstances (i.e. no apparent, imminently looming credit crisis) are encouraging a mere trading proposition in stocks, one whose justification could be called into question in light of the fact that, the place where capital appreciation is most assured these days (particularly since April) happens to be in the safest of the safe: U.S. Treasury securities.


Once this realization sets in among the pig set, the asset reallocation could turn into an avalanche...

Fast Money
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