Guest post by Peter Tchir.
The Laundry Has Been Done
I hated investment advice based on “least dirty shirt”.
Now, here we are with DAX up more than the Nasdaq YTD, both in Euros and when converted to dollars. The IBEX index is now up some 35% or so since the July lows.
Anything that was hated or viewed as a good short is rallying the most
- Europe, especially Spain and Italy
- Banks, especially European banks
- Risky debt, especially periphery debt and high yield, along with CDS
Many pundits have proclaimed the equity space as dead. People do not care about equities. Equities are simply out of fashion, the market is broken, only Algos trade, Europe is in a mess etc. There is one problem with this logic. It is called greed and fear. People have been abandoning the equity space for quite some time, but as we all know, the human race is a greedy one. We are not calling for a huge bull market having just started, but the psychology of people is at extreme levels when it comes to “I don’t care about equities”.
Cheap or not, if the market starts squeezing for real, with the help from Bernanke and his friends, investors might get caught in the trap of not having any equities in their portfolios, at least in the short term. As Einstein said; “Only two things are infinite, the universe and human stupidity, and I’m not sure about the former.”
The chart sums it up all pretty well. If you didn’t read PIMCO’s latest here is the link, urging people to be careful….
A quick update on the Treasury YIelds. Courtesy Doug Short.
What’s New: The big rally in equities today was, predictably, accompanied by a rise in Treasury yields. Freddie Mac’s weekly survey results, posted today, puts the average 30-year fixed rate mortgage at 3.55%, down 11 basis points over the past two weeks and just six basis points off the historic average low set in late July.
As for the Fed’s, Operation Twist, here is a snapshot of selected yields and the 30-year fixed mortgage since the inception of program.