Barrons On the Reflation Trade.
It has been obvious for some time that the dollar and gold have been inversely correlated this year with gold rising as the dollar has fallen versus other currencies. Now many are beginning to question whether that trade is in the process of reversing itself. Barrons was out the other day with a piece on this exact subject. I've excerpted it below and included a weekly gold chart via the ETF-GLD. {Note I am long GLD in certain client accounts}. Gold may be ready for a breather but it still has many longer term positives as long as countries all over the world continue to print money.
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Reflation Trade Shifting Into Reverse?
Risk assets ranging from stocks to commodities to currencies seem to be faltering after being floated on a sea of liquidity.
THE SO-CALLED REFLATION TRADE in risk assets seems to be running into headwinds.
Free money -- in the form of dollar-denominated money-markets yielding virtually zero -- has penalized savers and paid borrowers to finance positions in stocks, currencies and gold, commodities and even bonds. This rising tide of liquidity has lifted all those sectors since the summer.
Now, there are signs they are faltering. Monday, stocks ended down 1% after being up 1% earlier in the session, and Treasuries also slid, uncharacteristically. Gold and oil fell together, but gave no support to fixed-income markets. Meantime, the beleaguered dollar bounced off the floor.
Let's resist making too much of a single session. Still, the currents that have been moving markets, mainly driven by the huge tide of cash burning holes in investors' pockets, no longer seem to be having the same effect.
Part of this could be because the big money is, in poker terms, all in. SEC filings show the top 100 institutional investors increased their holdings of equities by $570 billion, TrimTabs finds.
"Rebalancing and then performance-chasing by institutional investors were enough to send stock prices shooting higher even though companies were net sellers of shares and retail investors were on the sidelines," the research firm writes in its Weekly Liquidity Review.
"With so much money already pumped into stocks and many indicators -- margin debt, short interest, mutual fund cash and sentiment surveys -- showing extreme bullishness among institutional investors, we doubt portfolio managers have much money left to drive stock prices higher," TrimTabs concludes.
The weakness has come in economically sensitive sectors that ought to be cooking instead of tanking........
While the Dow Jones Industrial Average posted back-to-back 100-point losses Friday and Monday, the companion Dow Jones Transportation Average got pasted Friday, by some 3.5%, and another 0.8% Monday....
I'll resist putting forth ex post explanations for the markets' simultaneous seeming retreat from risk. It may be nothing more than a breather from the liquidity-driven rally of 2009. But it certainly bears watching.
Risk assets ranging from stocks to commodities to currencies seem to be faltering after being floated on a sea of liquidity.
THE SO-CALLED REFLATION TRADE in risk assets seems to be running into headwinds.
Free money -- in the form of dollar-denominated money-markets yielding virtually zero -- has penalized savers and paid borrowers to finance positions in stocks, currencies and gold, commodities and even bonds. This rising tide of liquidity has lifted all those sectors since the summer.
Now, there are signs they are faltering. Monday, stocks ended down 1% after being up 1% earlier in the session, and Treasuries also slid, uncharacteristically. Gold and oil fell together, but gave no support to fixed-income markets. Meantime, the beleaguered dollar bounced off the floor.
Let's resist making too much of a single session. Still, the currents that have been moving markets, mainly driven by the huge tide of cash burning holes in investors' pockets, no longer seem to be having the same effect.
Part of this could be because the big money is, in poker terms, all in. SEC filings show the top 100 institutional investors increased their holdings of equities by $570 billion, TrimTabs finds.
"Rebalancing and then performance-chasing by institutional investors were enough to send stock prices shooting higher even though companies were net sellers of shares and retail investors were on the sidelines," the research firm writes in its Weekly Liquidity Review.
"With so much money already pumped into stocks and many indicators -- margin debt, short interest, mutual fund cash and sentiment surveys -- showing extreme bullishness among institutional investors, we doubt portfolio managers have much money left to drive stock prices higher," TrimTabs concludes.
The weakness has come in economically sensitive sectors that ought to be cooking instead of tanking........
While the Dow Jones Industrial Average posted back-to-back 100-point losses Friday and Monday, the companion Dow Jones Transportation Average got pasted Friday, by some 3.5%, and another 0.8% Monday....
I'll resist putting forth ex post explanations for the markets' simultaneous seeming retreat from risk. It may be nothing more than a breather from the liquidity-driven rally of 2009. But it certainly bears watching.
*Long ETFs related to the S&P 500, Dow Jones Industrial Average, certain energy related ETFs
certain technology related ETFs and GLD for certain client accounts.
posted by CR English at 9:27 AM
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