To: J.T. who wrote (2368 ) 1/20/2000 11:51:00 AM From: pater tenebrarum Read Replies (1) | Respond to
J.T., just wanted to drop by to update MITA on sentiment measures: a very interesting, though not entirely unexpected development is that by all available measures (put/call ratios, Market Vane, Consensus Inc., AAII and Rydex ratios) stocks and bonds are at exactly the opposite side of the spectrum, and both at what are historical extremes. it seems everybody is bullish on stocks and at the same time bearish on bonds. the Rydex ratio on stock funds for instance recently hit an all-time low of 0,10 (meaning only 10% of the money in Rydex funds is in bearish positions) while the Rydex bond ratio hit an all-time high of 3,45, on the very same day. my conclusion is that we will soon see a shift in the markets, with asset re-allocation out of stocks and into bonds. i have no idea what the trigger will be, but i suspect it could be a string of weaker-than-expected economic data. the reason for this suspicion is that at the long end, the yield curve has recently inverted, with 10-year notes sporting higher yields than the 30-year bond. at the same time, ST (t-bill) rates have broken out to the upside. since, at least officially, there is no discernible acceleration in inflation yet (well, some acceleration, but nothing too disturbing), i would guess that the credit markets suffer from an enormous push in credit demand coupled with the perception that credit risk is on the rise. currently there is almost 10 trillion dollars in ST debt denominated in U.S. dollars outstanding that needs to be rolled over every 6 months or so. that's a record, both in absolute terms as well as relative to GDP. it's an accident waiting to happen.
