I have been fielding a few private emails asking about the rather bizarre behavior in the bond market today. After being greeted with a downgrade to the US credit outlook from "stable" to "negative" by S&P, the bonds sold off sharply falling near a full point at their worst level.
They then began moving higher even as the stock market was sharply lower as the rival ratings agency, Moody's issued a positive outlook on its own AAA US rating. Moody's did site some of the same concerns as S&P but suggested that the US government would reach some sort of agreement on dealing with the massive debt problem in contrast to S&P which was not at all confident that leaders would be able to come to any agreement to deal with it.
Moody's also cited issues facing Greece and thus drew some attention off of the US credit issues and back onto Euro sovereign debt issues.
The situation reminds me of the scene from the old movie, "Deliverance", with the dueling banjos. Moody's basically pooh-poohed S&P. My way of thinking is the US citizens are the ones going to be doing the squealing when the dust finally settles - those who saw the movie and remember that one scene will know exactly what I am referring to.
If that was not enough, the US National Association of Home Builders Index revealed that homebuilder optimism in the industry dropped one point in April from 17 to 16. That served to reinforce the notion of a sluggish economic pace of "recovery" in the US calming some concerns about any early end to QE2 as some of the Fed governors were out yacking about once again.
I should note here that the speed at which the long bond market fell tells us just how precarious things are in that market. In my opinion, it is a giant accident just waiting to occur.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET