It was a bad day in US equities yesterday, with the S&P down 2%. US 10-year yields plunged as well, touching 2.2%. Italian yields have spiked again this morning, up 19bp at one point. There are signs of problems in European money markets. it all feels like another Lehman-style hurricane is forming.
So how do I feel about it? I have a strange kind of detachment on one level. We've seen so much stress and turmoil these last four years it doesn't seem that new any more. It doesn't have the feeling yet of dropping off a cliff into the unknown yet that October 2008 did.
But there is also a sense of more chronic, deeper cracking up going on. The fire brigade was called out in 2008 and 2009 and doused the world with liquidity. The central banks cut rates and governments spent trillions on stimulus.
We don't have those policy options now. They're done and we won't be able to put out the next fire so easily.
I just want to build up more money in cash (and not money market funds either).
I'm not selling out of equities. Like last time I'll grimly ride the storm through rather than try to time the market. There could be short-term rallies as well, especially if we occasionally get good data.
But this feels bad. Italy in particular could be a Hurricane-level storm if it continues.
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