Friday, February 15, 2013

The Great Re-Rotation

There is an investor rotation underway (preference-pivoting) - from bonds to equities - so I have read.  The story goes that investors are questioning bonds and would rather risk money in equities for yield.  The US federal deficit contracted in real terms in the fourth quarter of 2012.  Equity risk over cash (no yield) is a liquidity trap with no escape for NPL ridden China.
Federal spending (blue); federal taxes (red); federal deficit (green).
Are the bond markets speaking to us?  Are they telling us that they are tired of making risk free money at the expense of reflated balance sheets (on the asset side); that the federal government must reduce its deficit to appease their yield desires?

Didn't this happen in the 1990s?

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