Gene Inger's  Instablog

A flight to ‘risk’ . . . rather than a flight to ‘safety’, is what happened on Wall Street Thursday. It was also a sort of ‘flagpole’ for the DJIA, while a bit of a ‘flagpole & pennant’ formation for the S&P 500. Too soon to rule this hearlding a clear ‘reversal’, but besides the best of presumably improved earnings largely behind, and a few misses which ought to restore a slight sensibility to all this; there more behind the scenes that reflects what is and isn’t worth embracing.

First of all; the ‘risk’ trade aside short-covering, has essentially coming-out of Treasuries and into stocks. There’s an inherent danger in that; as rates end their consolidation and start advancing again. Then there is the Treasury Auction resumption next week, which  might tend to be a bit painful in this regard. Further, there is a mass migration (sheep-like) starting to be evident, which often is a sign of capitulation at the end of any swing run.

If we’re right; you have an effort to compel acceptance of a 'done-deal' consensus view of stabilization and a recovery. Plus slightly improved housing statistics, that we view as suspect; though again you can’t replicate the downside we rightly forecast over these preceding two-plus years; nor did we or do we expect to. There are scenarios that could modulate just as Government wants; but there are alternate futures that could constrict economic activity, no matter expansionary monetary or other policies.