One thing that befuddles and bedevils us is the trading in European bonds. Given the implications, for example, of what can happen to our banks if a European bond auction goes bad, we have to stay focused on the results of each auction.
But here's the problem: We often act as if these bond markets are similar to the bond markets of the U.S. -- that is, big, liquid and relatively perfect.
They are not, though. Not at all. Take this morning's Spanish note auction that has everyone in Europe so jazzed. First, on the face of it, the positive vibes seem a little silly. The Spanish 12-month paper rose in yield from 1.418% last month to 2.623% today. The 18-month paper rose in yield from 1.711% last month to 3.11% this morning.
How is that be a cause for elation? Because, at the same time, the 10-year receded a few basis points, to go back below 6%, and we know we have a big 10-year auction on Thursday so that might augur well for that market and therefore us.
I would like to step back from bond-think world for a moment, though, and express the small-cap-like horror that is the Spanish note market. How could rates for this potentially failed state with unemployment as high as we had in the Great Depression ever have gotten to where they were last month? Who bought one-year paper for 1.4%? Who bought 18-month paper for 1.71%? Who could have been that stupid?
In other words, it isn't that rates went so high this morning; it's that rates should never have been as low as they were in March.
That's just lunacy.
We are trading off markets that are so imperfect, so astoundingly inaccurate and so wrong-headed, that it is almost the height of foolishness to trade off them.
But we do.
That these markets somehow hold the fate of the Western world in their hands no matter how big they are just seems wrong to me. I think we are going to look back at this era and say why did we let our markets get so carried away with Spain? How did we treat our economy the way we would have in the 1920s with the gold standard that linked us?
Right now, though, it's a reality, unless you have been in the growth stocks that have been able to transcend the European pull. For those in the Chipotles (CMG) and Allergans (AGN), the whole linkage must seem the height of craziness.
When I attempt to point that out, however, a chorus sings in unison, Cramer's whistling past the graveyard.
To which I come back and say, I might be until everyone realizes that I am not.
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