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Hopium

It seems rather comical to me that the main headline explaining today’s strong rally cited the strong optimism regarding central bank stimulus…  Pretty interesting.  The US market is down 10% since the start of the small correction, so that by itself does not give Ben Bernanke a lot of ammunition to print.  The US 10 Year treasury bond is still sitting at record lows below 1.7% so it certainly does not seem very wise to argue for another round of QE or bond purchases.  The Fed Beige book came out today and the economic news was not all that bad, so that does not support the argument either.  Are we optimistic about European central bank stimulus?  How often do the Europeans surprise on the upside?

I guess I will wait and see what the wise Bernanke says tomorrow.  In the mean time, I wanted to point out a divergence that bugs me a bit – the massive difference between interest rates and equities.  It seems to me that a 30 year yield below the current rate of inflation would be a negative indicator going forward:

2.72% on the 30 year treasury and 1315 on the S&P 500.  They just don’t seem to line up. Either treasury bonds are REALLY expensive and stocks are fine, or the treasury markets believe something that the equity markets do not…

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