Bi-polar financial markets

There is a stunning ability for the equity markets to shake off bad news after bad news. Meanwhile the underlying credit markets continue to deteriorate. Both cannot be correct. This divergence will end, we just do not know when. The odds are overwhelming that the credit markets have this correct.

From Mish, who has lots more on the subject.


  1. Part of the problem, I think, lies in the fact that people have money to invest, and there are a limited number of traditional investment vehicles. Real estate is in the toilet, bonds are shaky, that leaves only one place to go: stocks.

    We might note that the market IS down from its highs of last year, and real estate is not expected to recover for at least another six months (and maybe a year or more). Thus, of the three, stocks really are the better choice using traditional logic. (Personally, I think it’s time for those with the cash to start looking for real estate bargains to hold long-term. Wish I had the cash.)

    The alternative, that people just pull their money out and sit on it for a period of years (and make nothing) while this mess settles down, would IMO be a real “doomer feedlot” scenario.

  2. Except if the bond market really starts collapsing then it’ll bring down the stock market too. It’s all interlinked now and bond [problems mean margin calls which means they sell something, probably stocks, to meet the margin call.

  3. Bi-polar is an understatement. The truth is I don’t think anyone can fully grasp the extent of the debt troubles the world faces, the USA in particular. I have read unofficial numbers in excess of 600 TRILLON, the only way out is hyper-inflation. At the same time investments in production capacity keep marching along bringing the potential of too many goods chasing to few dollars aka as deflation. My best guess is that the markets for for a number of to come are going to wild and wooly with no sure thing in market. As far as real estate bargains wait for the boomers start to unload then you will see relative bargains

  4. I think the stock market is finally cracking to the downside, we shall see.

    Full disclosure: I own puts on indexes and stocks.

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