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Fleck's Thoughts
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Bond Indigestion


Overnight bond markets were weaker once again, for the most part, and this has now been a couple of weeks straight of down days for them. Exactly what is behind it, it is too early to tell. Did prices just get to a place where they couldn't stay? Are people finally worried about the fact that they are a losing proposition from a yield perspective versus an inflation standpoint? Is it just noise? My guess is it is a combination of the former two, though we won't really be able to tell how much trouble the world's bond markets might be in until we see how they respond to a serious decline in equity markets.

Turning to equities, those markets were also weaker overnight. Whether that was a direct response to the fixed income action, I can't say. As for our stock market, it opened modestly lower, then the dip buyers showed up, as they think they know that stock prices can't decline aggressively two days in a row. However, the initial bounce attempt didn't get too far before it ran out of gas.

More Than Just Drops In the Buckets On the earnings front, I neglected to mention yesterday that Alcoa's numbers were poor, while last night Ericsson and Fortinet (a provider of "security solutions") preannounced with the latter citing, "the lengthening of deal cycles as enterprises are becoming more strategic with their purchasing decisions and buying with less urgency than last year." Ericsson also had issues thanks to weak enterprise spending. So when one looks across the technology landscape, PCs, tablets, and smartphones are all weak in the aggregate, and now we can add in a certain level of IT spending weakness.

As for the suppliers to those end markets, i.e., chip stocks, which rallied by an average of 40% last quarter, other end markets such as autos are slowing as well. But for the time being, inventory for those companies continues to build, making the chip sector a ticking time bomb, although it seems disinclined to detonate thus far. We will find out just how bulletproof the tape is as we continue to grind through earnings season.

At any rate, the early dip was erased by midday and the indices climbed a bit more on dovish FOMC minutes. However, the rally fizzled and the market closed with the small gain you see in the box scores. Away from stocks, green paper (barely) continued its run higher, oil lost 1.5%, fixed income was weaker again, and the metals were slightly higher.

Positions in stocks mentioned: none.