The financial markets are a little more confusing than usual at present, especially from the macro view of bond traders watching the broader gyrations. Credit and equity markets are contradicting each other – a contradiction that surfaced in yesterday morning’s JP Morgan credit and rates market commentary:

The equity markets are on drugs. The Fed thinks the economy is cactus, we all know that the housing market is stuffed, the US in importing inflation faster than Ben Cousin doing a bunk from rehab and those equity buffoons just keep on buying. We all know that if you can’t spell coupon, you become an equities punter, but it’s only recently that I have realised that they can’t count either. Last night the Fed told us that they are as equally concerned with inflation as they are with growth – or lack there of. The Chicago PMI dropped below the all important 50 and what’s worse, there was a massive surge in inventories from 38.2 to 55.1, our Mystics now think the the ISM will just hang on to 51. The scary part about the PMI number was that if inventories are that high and the economy is slowing, then who is going to buy all the stuff lying about in their sheds? … In other words, the US is not quite dead, but it’s certainly coughing up blood. And on the back of this, the tiddler market finished the day up 1%. UP!!! Are you lot mad? The Fed thinks the economy is going to hell in a bucket and you lot buy equities because they cut rates. Idiots.

There’s more, but you get the general tone. Another email doing the market rounds is a cheat sheet on present US market terminology:

Q: Having trouble understanding why the market isn’t falling?

A: Equity cheat-sheet:

weak data = Fed ease, stocks rally
consensus data = lower volatility, stocks rally
strong data = economy strengthening, stocks rally
bank loses $4bln = bad news out of the way, stocks rally
oil spikes = great for energy companies, stocks rally
oil drops = great for the consumer, stocks rally
dollar plunges = great for multinationals, stocks rally
dollar spikes = lowers inflation, stocks rally
inflation spikes = will inflate all assets, stocks rally
inflation drops = improves earnings quality, stocks rally

Locals need to remember the American view is not the world view anymore, but there’s plenty of angst in what remains the world’s biggest economy – for now.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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