When money leaves the equity markets the active hedge funds, investors, and other large money movers on Wall Street will seek out the ‘safety trade’. Traditionally the safety trade has been to move money over to the treasury market. When the stock market went down the bond market (price) would go up.
Another ‘safety trade’ of late has to been move into the US dollar. However now we find ourselves entering into a very different phase of the economic disaster that the United States is still in.
The US dollar is now beginning to drop in price against other world currencies. And at the same time money is being pulled from the treasury markets which is now sending yields up. These two events combined are creating significant headwinds to economic recovery in the United States. Ben Bernanke needs to keep yields low in order to keep what is left of the credit markets moving. Tim Geithner wants the US dollar to be healthy in order to keep foreign holders of our debt happy and to have them purchase even more treasury notes.
But, should the bond market continue to drop in price sending yields (and interest rates) upwards, the US dollar dropping, and the equity market still hanging by a very thin thread and about to roll back over based on chart technicals then the rug will be pulled from out Ben Bernanke and Tim Geithner.
Yesterday we witnessed a situation not often seen. Treasury prices were dropping, the US dollar was dropping, and the money being pulled was not going into the equity market as money was being pulled from stock as well. Yesterday may very well have been a ‘vote of no confidence’ in the economy of the United States. And with the debt load (and still growing) from all the bailouts putting at risk the credit rating of the United States I too would have no confidence in the US economy being healthy for a very long time.
Ben Bernanke and Tim Geithner may very soon discover what all of the bailouts have ‘really’ cost. The problem is that Ben Bernanke is at the last page of his play book.
(click image for full size)
USD/JPY
Recent Posts:
- Taxpayers to the Rescue of Afghanistan Banking Crisis?
- Economic Data and Earnings Schedule for September 2 2010
- Christina Romer Makes a Final Recommendation Before Leaving To Teach Keynesian Economics
- Homebuilder Hovnanian (HOV) Reports Dismal Quarter
- Auto Sales Data for August 2010
- Stock Market Rewind – September 1, 2010
