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Dollar Index98.510.28
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Long Bond 20-year149.75-1.78

Carnage In Fixed Income

03-21-2022

The indices were mixed, although not that far from unchanged through midday. I would imagine most people look at the market action and just shake their heads given the news across a broad spectrum. Stocks rallying and/or trading sideways in the face of overwhelmingly negative fundamentals just demonstrates the power of the passive bid, structured products, and muscle memory. My sense is that there ought to be a very good short-selling opportunity not too far in front of us, but given the market structure, one has to give the upside the benefit of the doubt.

In the afternoon, a small undertow developed that took the Dow/Nasdaq about 0.5% into the red, with the S&P about flat. Away from stocks, bonds got really hammered all across the curve, green paper was about flat, and the metals were higher, with silver gaining 1% compared to 0.75% for gold. Meanwhile, oil rallied 5% and commodities across the board were quite strong.

A Hard Reset The next year or year and a half is going to see massive disruptions in the commodity sector. As a result, attitudes will change dramatically regarding the efficacy of just-in-time production and inventory management and that is going to stoke inflation psychology, which will prove very difficult to change.

The good news is the fact that the Fed has blown this so badly means the bond market is almost certainly going to take the printing press away sometime this year. That's going to lead to plenty of economic and financial pain, but perhaps the country will sober up and we can pursue some intelligent policies for a change, although I'm prepared to be disappointed yet again on that score.