Saturday, November 29, 2008

Themes of Recession and Deflation Continue to Dominate Markets



As the charts from the excellent Barchart site indicate, anticipations of quantitative easing moved ten-year Treasury note yields below 3% last week, sending prices soaring (top chart). Interestingly, with so much pumping of liquidity, we continue to see a relatively strong U.S. dollar (middle chart) and weak commodity prices (bottom chart). These themes continue to be deflationary, or at least anti-inflationary. Money continues to seek relatively safe havens, including--amazingly--the U.S. dollar. Investment grade bonds continue to outperform high yield issues; the currencies of developed economies continue to greatly outperform those of emerging markets.

Among equities, the best performing industry group according to Barchart is "soap and cleaning products"; mining and steel bring up the rear. Defensive, recessionary themes remain dominant.
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