A Break or a Breakdown?

The 10Y yield has clearly broken trend as expected, with a couple of Fib tests the only things standing between it and our downside targets.  Our 28.56 upside target from Jan 10 [see: China – It’s Not Me, It’s You] has officially yielded. This is what stocks were waiting for — a sign that interest … continue reading →

Why Rising Rates Are a Problem This Time

A sharp drop in interest rates has traditionally been a negative for stocks.  The chart below shows that most significant declines in 10-year yields over the years were associated with steep drops in the S&P 500.  Usually, equity losses precipitated the drops in yield.  As stock declines accelerate, money flows into bonds — raising prices … continue reading →

The Wipeout Ratio

A simple calculation comparing major banks’ derivatives positions to their assets and capital shows how little it would take to wipe out either.  The first ratio is the multiple that derivatives represent of Tier 1 capital.  The second shows the miniscule percentage decline in the value of derivatives portfolio it would take to completely wipe … continue reading →