No More Bloodbath – Beyond Cryptos

S&P 500 again rejected within sight of ATHs – again, but not totally convincingly. Especially the credit markets‘ mixed picture leans in effect slightly bullish, yet for the 500-strong index, the source of short-term worry would likely be the tech sector again. Either not pulling ahead as strongly, or taking a breather, which should be more noticeable in XLK than in Nasdaq 100.

VIX looks to be done declining, and the option traders have hedged their Thursday‘s bets. Given the wavering risk-on segment of the credit markets, it‘s probably justifiably enough. Inflation expectations rose a little though, faster than the Treasury yields moved, which could be taken as a sign of value likely to do overall fine next – and that‘s also confirmed by small caps and emerging markets. As I wrote on Friday:

(…) Is that the worst of the inflation scare being over, for now? Probably yes, and the retreating Treasury yields are mollifying – but as explained in ample detail, this calm before the (autumn) storm, is deceptive. Calling the Fed‘s bluff, precious metals (and some commodities) are onto something, really.

It‘s only the cream of select commodities that has been taken off – in the big scheme of things, nothing but a consolidation within an existing secular bull market, is happening there. While the inflation trades have been dialed back to a degree, they haven‘t been broken as the Fed is in a reactive, not proactive mode. More precisely, it remains in denial of the inflation ahead.

In other words, I am not buying into the taper smoke and mirrors. The Fed knows that it can‘t (seriously) take away the support – it can only talk that, and look what the market does next. It‘s a long journey of preparation, and I am not looking for the central bank to move any time soon:

(…) soft patch, prolonged commodities consolidation yes, turn to deflation no. In such an environment, silver would have a tougher ride and be vulnerable to volatile swings defined by how the inflation, yields, expectations and Fed action bets play out.

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