Business

One. Big. Squeeze...

Everything must be awesome...

"Riskless" US Treasury bonds are at their riskiest relative to "risky" stocks since the summer of 2013's Taper Tantrum... and at the same time, bonds are 'cheapest' to stocks in over a year...

US Treasury bond risk is at its highest in 9 months as US equity risk hovers back near 2-month lows pushing the relative risk to its highest since Aug 2013...

In June 2011, July 2013, and July 2015, we saw the same spikes in bond risk vs equity risk... and each time, stocks collapse and stock vol surged very soon after.

A few months ago we wrote that the Dallas Police and Fire Pension Fund was on the verge of collapse after a series of shady real estate investments resulted in massive markdowns of pension assets, the ouster of the fund's CIO and an FBI raid of it's largest real estate investment manager (see "Dallas Cops' Pension Fund Nears Insolvency In Wake Of Shady Real Estate Deals, FBI Raid").  We summed up the fund's dilemma as follows:  

Mario Draghi just dropped the c-word. In his address to the EU Parliament, the ECB President explained that financial-stability risks are "for the time being, contained." Having admitted that Deutsche Bank is correct that negative rates certainly hurt bank profits, Draghi remains "committed to accomodative policy." But it was ECB executive board member Benoit Coeure that spoiled the party by rejecting the narrative of ECB stock buying.

Last week, when looking at the divergence between Donald Trump's proposed fiscal plan to "make America great again" on the back of an unprecedented fiscal stimulus boost which is expected to add $5.3 trillion to the debt over the next decade...

... and the deleveraging fiscal plan espoused by House Republicans...

... we pointed out something disturbing: the two plans were roughly $12 trillion apart over a cumulative ten year period, a difference equal to more than one-quarter of total federal outlays.