11 Sep TWO CONSISTENT THEMES…
Two consistent themes of these remarks are negative interest rates and the transition of funds back to Main Street from Wall Street.
Commenting upon negative interest rates, I have referenced the Bank Of England (BOE) comment several times that interest rates are at a 5,000 year low. Up to this point I had no idea how they derived at this conclusion. I believe it is a reference from Sidney Homer’s text book entitled “A History of Interest Rates.” It examines economic activity going back to 2000 BC and beyond.
According to the text, ancient Sumerians and Mesopotamians had an agricultural futures and options markets. But for all that economic ingenuity, one thing that does appear in the nearly 5000 years covered by Mr. Homer is negative interest rates. It is a new phenomenon brought upon by central bank activity.
Monday a WSJ headline read because of central bank activity and the explosion of sovereign debt, such is a major reason for negative rates. Economics 101 dictates the more supply of something the lower the price. Bond yields and prices move in opposite direction…higher prices lower yield and vice versa. Based upon economics 101 today sovereign bond yields should be considerably higher and prices considerably lower, the inverse of today.
Wow! I wonder what Homer would write about today.
Commenting about the transition of funds back to Main Street from Wall Street, Bloomberg writes both Monday and Tuesday was a massive momentum move. Monday momentum traders had their worst day in a decade, further writing that it was the largest one day shift in momentum since 2009. Value and the small caps shined…aka the Main Street companies.
This momentum shift occurred despite the greatest amount of monies flowing into the largest ETF that mirrors the S & P since April. Bloomberg writes more than $3.5 billion streamed into State Street’s SPDR S & P 500 ETF, boosting the funds assets to $272 billion, the highest in more than a month.
Two days is not a trend but…
Last night the foreign markets were up. London was up 0.87%, Paris up 0.43% and Frankfurt up 0.76%. China was down 0.41%, Japan up 0.96% and Hang Sang up 1.78%.
The Dow should open flat even as the foreign markets advanced on emerging signs that China will move to lessen the trade war repercussions. Oil is up about 2% on a large inventory draw. The 10-year is up 6/32 to yield 1.72%.
Today is September 11. Like many I vividly recall where I was and what I was doing at 8:46 A.M. eighteen years ago. Please remember all those who lost their lives in your thoughts and prayers.