More calming views this morning, this time courtesy of Ken Fisher, chairman of Fisher Wealth management, writing in the FT’s Insight column.
It’s all just a typical bull market correction, says Fisher:
Conclusion: this is a much ballyhooed, much ado phony credit crunch, not yet recognised as such.
Fisher’s main point is that market players are hoarding cash - not a typical sign of an early bear market, but rather the last stages of a correction:
How to know that? For most of history, US Treasury bill rates have been inelastic relative to Fed Fund rates.
The T-bills have been just a hair below the Fed Funds rate. (Note: T-bills can’t exceed the Fed Funds rate for long or banks would borrow Fed Funds endlessly to buy T-Bills).
When that gap, T-bills below the Fed Funds, has widened very far, say more than 1.25 per cent, it has almost always been from the Federal Reserve jerking its benchmark up in the short-to-intermediate term.
When the gap widens solely from the T-bills falling – while the Fed Funds rate remains steady – it means non-profitable cash hoarding and that is what is going on now.
And the spread on T bills to the Fed rate has widened from 35bp back in July, to 2.25 percentage points just two days ago, with Fed funds at 5.25 per cent and T-bills at 2.9 per cent. It’s classic hoarding says Fisher.
And because, as per above, longer term credit spreads aren’t all that wide and widening, it is cash hoarding in anticipation of a phony credit crunch. This is bullish.
US treasuries are, however, still very volatile - with some pretty heavy zig-zagging rocking the market and swings of up to 100bp. Nonetheless, Wednesday continued Tuesday’s massive sell-off, with the yield on one month T-bills rising 79bp to 3.11 per cent.
But primary market dealer’s have until now been unwilling to participate in the market, say some analysts. Volatility scared many off until the Fed’s auction price for new bonds on Tuesday dropped well below that being currently traded. So perhaps it’s not all about money-hoarding after all.
And it would seem the bulls have been out in force this morning.
“We’re seeing the return of greed,” said Jim Paulsen, chief investment strategist at Wells Capital Management in Thursday’s FT.
“There’s liquidity out there, and whereas last week we saw fear of the downside, now we’re experiencing fear of missing out on the upside. It looks like it might be the beginning of the end of the crisis.”
