What a happy coincidence!
The Treasury had to sell $66Bn worth of notes this week and there was no POMO for the Fed to bid with. The US could have been really screwed but, luckily, the market crashed and everyone is panicking – INTO TREASURIES! Isn’t that convenient? With our 10-year auction tomorrow and the $33Bn 5-year auction today, yesterday’s panic sent the 10-year yield down to 2.82% – the lowest yield since December 1st and it should be even better this morning with TLT flying up to 97.50 and possibly getting back to November highs (hint for those of you not catching a theme – that was pre-POMO) if we can top 98.
As you can see on David Fry’s chart, we are now repeating the pattern we had last summer but, unfortunately, last summer was annoying as we fell from 11,258 at the end of April to 9,614 in the beginning of July (14.6%), back to 10,720 (11.5%) in early August and then back to 10,000 (6.7%) at the end of the month and THEN there were first rumors and then confirmation of QE2 and by February we were back to 12,391 (up 23.9%). A drop and a pop and a drop and a pop later, and here we are, right back at 12,500 in early July with our TBills back where they were in early July of last year.
Sting and Jung would call this "synchronicity", which is "a coincidence in time of two or more causally unrelated events which have the same or similar meaning" – kind of the Universe’s way of starting conspiracy theories. Well, for whatever reason, it sure is LUCKY that the global markets are crashing the same week the US has to borrow a crap-load of money, isn’t it? Last year our motto was – "Hey, we may be a giant mess but at least we’re not Europe" and, this year our motto is "Hey, we may be a giant mess but at least we’re not Europe OR Japan." Perhaps next year we can add China to that list as the Hang Seng dropped 684 points this morning, all the way down to 21,663 or as the great Surfaris said: Wipeout!