Wonderland

By NFTRH

Alice's_Adventures_Under_Ground_-_Lewis_Carroll_-_British_Library_Add_MS_46700_f45v“If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would. You see?” –Alice in Wonderland

Silver out performs gold as both rise with Treasury bonds, which are in turn rising with stocks, as Junk bonds hit new recovery highs while USD remains firm as inflation expectations are out of the picture. This is highly atypical, maybe even unprecedented.

Some, deeply dug into their particular disciplines and biases, might say it is dysfunctional, as this backdrop simply does not make sense using conventional methods of analysis. Why again did I name this service Notes From the Rabbit Hole?

When the S&P 500 was robo rising month after month, year after year as it did from 2011 to 2015, you did not need the market report with the funny name because all was linear and as it should be. The same actually, could be said for gold. It was linear and as it should be in its relentless downtrend. Casino patrons simply ride the trends!

But today things are making sense simply because we don’t have a need to make them make sense as linear thinkers would do; we go with the indicators and charts.

As I watch the macro burp up all kinds of paradoxes and inconsistencies, I can’t help thinking back to the day that the ‘Hero’ announced Operation Twist, which in turn got me announcing “they are painting the macro”. When Ben Bernanke took the bold step into the great unknown of extreme and unconventional policy I felt the markets had been disconnected from commonly accepted wisdom maybe not for good, but for as long as the system and its current modes of operation are in effect.

To review, Operation Twist forced changes upon the macro because it “sanitized” (the Fed’s actual word for it) inflation expectations right out of the picture. The mechanics of this sanitization were the Fed selling short-term Treasury bonds (putting upward pressure on short-term yields) while simultaneously buying long-term Treasury bonds (putting downward pressure on long-term yields). The yield curve was changed from out of control (up) to in control (and down trending). From the Calculated Risk blog (http://www.calculatedriskblog.com/)…

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