-If we were only watching the bond market, we would think we were already in recession. If we were only watching the stock market, we would think the economy is accelerating. In simplest terms, we are getting quite the conflicting signals.-
-As we write this, amazingly, the 10 year is now yielding 2.473 as it drops markedly again. As we write this, the 1 month yield is right at the 10 year yield. In the past, quite often, this presaged a recession. But again, the stock market has been saying otherwise.-
-As far as the market, we can only describe the past few days in TECHNOLOGY as a mini-melt up. The all-important SEMICONDUCTORS are leading the charge in spite of so many fundamentalists saying the group should be going down. They have forgot the number 1 rule…price first, everything else second. We just have a problem believing we were going into a recession or worse with this group leading. Near term, the big issue is that we are seeing a bit of froth but so far not a biggie. Froth often leads to pullbacks.-
-But we are open to anything. If price changes, we will let you know but something is up. Something is not right with yields tanking like this. We know there is trouble elsewhere around the globe as we have talked about it for months.-
-If this continues:-
-We guarantee that the next move will be the Fed lowering rates. The fed cannot have fed funds above the 10 year yield. This will be a double guarantee if the economic numbers head south.-
-FINANCIALS should under-perform. Short rates above long rates? Not good…and in the past couple of days, most everything financial has been hit hard to the south side while tech has been bought up to the north side. Just a few days ago, these financials were trying to go topside. Exceptional weakness can be seen in the REGIONALS (KRE).-
-UTILITIES will continue to outperform with REITS right behind. These groups love lower rates. Of course, we doubt the REITS stay up if the economy gets in real trouble.-
-Needless to say, it’s getting a little weird out there. We don’t usually watch rates as closely as we watch stocks. This is one of those times.-