Dec 8, 2004

Figuring It Out

I am having a pretty difficult time reconciling the movements in various asset classes today. The strength in bonds coupled with strength in stocks makes the least sense of all. The stock market seems to be okay with that though and the breadth has improved since the open.

My best guess is that one of the Asian countries bought a healthy chunk of bonds last night. This moved the dollar but had a bigger impact on bonds because traders were still wrong footed from the jobs report Friday. Stocks are reacting with relief to the idea that the status quo is going to be maintained a bit longer. And commodities are in their own little world as Asian growth is disappointing and the dollar is not collapsing tomorrow.

There is some talk about deflation today with commodities off and bonds up but that view is tough to accept with stocks going higher. Deflation would be crushing for equity holders and maybe more importantly here, corporate bond holders. I would imagine the movements of a foriegn central bank would make it into the papers eventually if that is really what happened.

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