Only one of the Four Horsemen of the our Armageddon Trade is misbehaving, that is, not confirming by moving in the wrong direction. Stocks, which, some have touted as the new safe haven, have been hit the most and dollar has not sold off as much as one would expect.
The signal we’re extracting from the weekly move of the Four Horsemen is that though concern and the lack of confidence in the U.S. over the debt ceiling issue has increased, other factors, such as the deflationary consequences of a large fiscal adjustment into a weakening economy has moved onto the radar. Maybe you have a different interpreter, but that is our read of Mr. Market’s current message.
Next week we are going to start monitoring the short end of the Treasury curve for signs of stress. The one month T-Bill moved from 5 bps to 17 bps last week. Still low, but a large move and probably a reflection of what is happening in the repo market. Stay tuned.
