4.0 meh

Both BBG Business and Yahoo Finance had posts today on the "sideways" equity market. We suggested back in Spring that Summer would produce this type of action. We thought it would be sleepier than it is, however. The range has provided decent opportunity sans actual economic consequence. Our call was "There's not more going on than you think, there's less."

We see an important characteristic in markets that the Fed should take heart in: resiliency . My Econ professor used to say "A healthy market is a good girlfriend; deep, wide and resilient." Although the re-booted fixed income markets are neither "deep" nor "wide" (a complex consequence of technology, regulation and liquidity provider cartel) they have regained their resiliency. Since the Taper Tantrum (a serious fissure that mended), markets have flexed and fluxed to events and data without seizing up. Europe, China and Oil have all gone through major price adjustments without our markets losing function.

The normal response of participants, having been through the Big One, is to view every tremor as a signal of another crisis. The truth is, like earthquake predictions, we just don't know. The long drawn out snooze is much more common than violent shaking in markets and Mother Nature. Summer does turn to Fall and we expect the FI market to lead the way toward a new range. The return of resiliency is the best reason for the Fed to abandon the ZIRP.

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