The Fear Trade Still Lives

The Fear Trade isn’t leaving very quietly. The futures market indicates that the stock market is going to open about 2.5% lower this morning. Gold is back above $1,900 which is about 1% higher, and the bond market is up strongly as well.

The yield on the 10-year Treasury got as low as 1.907% which is the lowest yield since the 1940s. The yield on the 10-year is now 173 basis points above the two-year yield. That spread is down 100 points in the last two months.

Over the past few decades, a narrow 10/2 spread has often preceded a recession, but it needs to be much narrower than it is right now.

The concern today is that the Eurozone is about to plunge into recession and that this will drag the rest of the world down with them. Asian markets were also hit hard overnight. The Swiss franc has surged higher over the past several months as the euro has been rightfully kicked around. The Swiss central bank said today that it’s going to intervene in the currency market to “cap” the franc-to-euro rate at 1.2. The Swiss stock market loved this move.

Bank shares are set to get pummeled again. Bank of America ($BAC) is now below where it was when Warren Buffett decided to rescue it.

Posted by on September 6th, 2011 at 9:21 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.