Living In Interesting Times

Financial markets today have been experiencing bouts of irrationality if not plain insanity.

To consider, instead of getting compensated by loaning money to the US government via the purchase of US Treasuries, lenders LOSE money!

Chart from Bespoke Investment

Three month T-Bill yields have turned Negative!

And investors have been piling on, this from Marketwatch.com ``The Treasury Department sold $32 billion in four-week bills Tuesday at a yield of zero, implying investors purely wanted the assurance that they would get their principal back. Investors bid $128 billion at the auction, more than four times the amount available. Yields on one-month debt have plunged from about 1.80% in June. "I have never seen this before," said Michael Franzese, head of government bond trading at Standard Chartered. "It's all about capital preservation for the turn of the year, not capital appreciation.”

From our end, this remarkable development implies of a bubble at work.

Next, stock market volatility in the US is at record levels if one measures volatility from the perspective of absolute daily changes!

Chart from Bespoke

This from Bespoke Invest, ``Up until the start of 2008, a daily move of 4% in a 50-day period was noteworthy. From 1945 through 2007, the S&P 500 had 49 one-day moves of 4% or more, which is an average of less than one per year. This year we've had 28! For a market as big as the United States to average a 4.02% daily change over a 50-day period is truly astounding. This is the type of volatility that we see in frontier and emerging markets -- not the biggest, most developed market in the world. The volatility bubble won't last forever, and being long it at this stage of the game is a very risky bet.” (emphasis mine)

It’s been a wild rollercoaster ride out there.

Next, following the first official “rally” or “bounce” in US equities markets, Bespoke Invest says this had been the third worst bear market.

Chart from Bespoke

Again from Bespoke Invest, ``As shown, the bear market that ran from 10/9/07 to 11/20/08 is the third worst ever with a decline of 51.93%. The bears that ended in June of 1932 (-61.81%) and March of 1938 (-54.47%) are the only two that had bigger declines without a rally of 20%.”

All these seem to indicate that we are in some sort of a crossroad.