Message from Junk Bonds is still risk ‘on’
People touting bearish media headlines (like the Omicron/Fed tapering 1-2 punch) may be reinforcing the herd’s tendency to react rather than think, but all you have to do to know what the market actually thinks is to watch the indicators.
Those would include the Copper/Gold ratio for its inflationary cyclical/counter-cyclical indications. It would include Silver/Gold, for its early inflation indicator sensitivity (it rocketed to lead what would become obviously evident to all soon after and has diverged negatively well ahead of the recent inflationary cool down). It includes myriad other ratios and stand alone indicators.
But as to the speculative impulses of broad stock markets, credit spreads tell a story of frustration for those telling us how bearish it should actually be out there right here and now. Here is the thing; when the markets top for real there will be a confluence of disparate indicators guiding us. Some will trigger sooner than others and at some point enough of them will align (along with standard tools like technical trends/support) for a sensible new narrative to emerge. It’s simple, if you’re dorky enough to actually care about all this stuff (dork raises hand).
We noted the subdued state of credit spreads in this post on 12/16 and the picture by another view remains in the bulls’ camp. This could change tomorrow! But here is the thing; it has not changed yet. Junk bonds are back on trend after market players took the Omicron/Fed taper bait and puked in November. Additionally, Junk ratios to Treasury and Investment Grade are currently constructive and bullish, respectively. It’s hardly a picture of a bearish risk ‘off’ situation. That came in late November with the next instance not yet in play by this indicator.
All kinds of really smart people (and I am not writing that sarcastically) can compel you to feel a certain way, have a certain bias, because they deliver really smart sounding rationale; egghead stuff, that. But I try to use indicators that don’t care about what smart people think. They illustrate what is, not what could be or should be.
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