There are certain times when the markets just seem to disconnect. Right now that disconnect is between the US dollar, US interest rates and US equities. Since the end of November we have seen a growing disconnect – primarily between equities and other asset classes:
Is it strictly related to money flowing into US assets regardless of what they are, or is the market setting itself up for a large correction. Seems to me that one side of the equation is going to get hurt by a reversion to normalcy. At this point, who are you going to place your bet on – bond buyers or equity buyers/vol sellers?
Some ideas to bet on a reversion:
- Short equities, short 20+ year treasuries
- Long volatility, short 20+ year treasuries
Sizing the trade is the tricky part…