Chaotic Stability

Club Med equity indexes were all over the place last week but US capital markets flat-lined against most traders hopes. We felt that hyped up fear, earnings, China's currency move and impending Treasury supply would make for an orderly back up in yields. After several probes down on the week, 10 years ended marginally better. US and German finance continue to benefit from EZ problems. The fire walling and ring fencing promises of the IMF barely created a ripple.

The democratic processes of various developed (and 1 hybrid communist) nations are starting to stifle operational or creative solutions to the credit super cycle denouement. So far, the US has "benefited" from this stagnation. The Fed is meeting and further LSAP-ing or Twisting seems on the back burner given the data and the negative political environment. Recall, the 1 overarching agreement of Republican candidates was neither taxes or spending, it was sacking the Fed Chairman. Innovative action to write down principle and increase the transaction characteristic in housing is already finding no political traction.

We don not think this type of stability will persist for long. In many ways Americans regionally and American markets internationally are defining themselves solely in terms of others misery. This type of "advantage" rarely mean reverts in an orderly fashion. In equities, the earnings "beat rate" is approaching a modern era high (near 80%). This is serving only to expose the majority of analyst opinion as poorly developed and increase skepticism in the future. Like Pinatubo, the fallout from distant eruptions will be rolling in soon.

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