Some Thoughts on Current Markets

Now :=

• Current price action = US Yields Down + USD fx Down + Stocks Up => US Equity rally is liquidity driven. If fundamentally driven, then rates and USD should be higher, not lower.
• Liquidity driven stock rallies, if not supported by improving fundamentals = Not sustainable in long run. Therefore, do not believe this rally will last (see Rosenberg link below), however painful it might be to be missing out. Eventually it will end in yet more tears.
• Nowhere is inflation a consideration, as indicated by Rates markets (eg ED spreads + US1oYY). Therefore, this gold rally is purely a USD move (must remember this). Deflation? Also unlikely. Must be anti-USD then.
  
• Rates markets in the driving seat [Plentiful liquidity = low yields => therefore stocks up and fx lower]. Therefore, concentrate risks on Rates to make trading less mentally challenging. Watch Rates like a hawk and do not miss its signals.
  
• Other markets are noise and obscuring the real picture.

Future :=

• If USD weakens too much, then FX will eventually take over the mantle from Rates as the driver of overall markets. Not yet.
  
• If Equities are right (to be up where they are now or higher still) and Rates wrong, there will be plenty of time to trade for interpretation convergence later. See David Rosenberg on whats priced into current equity markets.