Submitted by Jeffrey Snider – Alhambra Investment Partners
It never fails when you issue a stark liquidity warning that in the day right after almost everything enjoys a nice rebound: stocks were up, including REM slightly, while even copper was bid almost $0.10 higher. There is, in all seriousness, no account for timing which is beyond any attempts here. In describing liquidity what we are taking into account are not raw predictions of trading mannerisms but rather the exits. In other words, we can observe, vaguely, and make determinations about the size of the exits and the potential sentiment for their general use – nothing more.
To those points, nothing much has changed since Tuesday. I would submit three main points in that direction; eurodollars, yen and treasuries.
Eurodollars continue to trade highly bearish, especially yesterday when stocks were bounding higher. The eurodollar curve didn’t change much at all, within a rather narrow intraday range. The yen is still above 120, which doesn’t suggest anything positive about at least the junk bond bubble. And US treasury yields are down again, with the benchmark 10-year at the lowest rate since August 24.
I could add swap spreads (but that is just another facet of the eurodollar futures view) and LIBOR which continues as elevated – maybe even gold. In other words, yesterday’s relief notwithstanding, money markets continue to display both an alarmingly narrow exit capacity and an “itchy trigger” about the possibility of using them.