Friday, September 24, 2010

Enjoying it but wondering

The recent performance of the equity markets has been something to enjoy. What long equity investor doesn't enjoy a day like today. I do.

There's this nagging problem, however, that has kept my fingers from the keyboard this week. Why is gold continuing to rise, commodities in general on a mild tear, and treasury yields almost unimaginably low. These are all, in conventional thinking, safe havens. They are attracting big money.

The equity market is certainly getting more buyers than sellers at the moment, but volumes are not robust. They are, in fact, running at the lowest pace for a September since 1999. So here's my big question - What do I not know? What structural, systemic or geopolitical time bomb is out there that is driving the gold buyers and treasury buyers.

Maybe none, but that question feels important after the '08/'09 debacle. Because the market was private with a complete lack of transparency, most investors, even traditional institutional ones, had no idea what was laying in wait for us in the credit default swap market. The LTCM crisis in 1998 within a matter of weeks froze global credit markets and who knew that one was coming. When bad financial events happen it can be quick.

So I wonder.


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