Thursday, March 5, 2009

Daily Savage Thoughts

The equity market is down nearly 4% and its not stopping there so as we go into the close many see a test of S&P500 680 support with risks for a more dramatic flush. The race to the bottom in equities was again led by concerns about financials. XLP down over 9%. The gold move higher suggests a return to risk aversion up $23 or about 3%. The equity / gold correlation was breaking down over the week and returns with a vengeance. For bonds its up 3 points and holding. The safe-haven of US government paper wins out with 10Y now 2.83%; 30Y 3.516% both 15 bps lower. The yield curve flattening trade started with the BOE action and continued into the US session. This usually means trouble for the USD the rates lower, USD lower trade has been in and out of favor until today where USD proves to be the second safe-haven of choice. First place goes to BRL which gains and fights the tape of the rest of EM with TRY printing 1.78 new yearly highs. The SEK was hit on the Oberg and Moodys stories early and remains a risk off trade with EUR/SEK printing new highs of 11.68. Commodity currencies are in play and all hurting AUD down 1%; CAD 1% - as oil drops $1.75 almost 4%. The driving force of US trading this afternoon has been the talking heads whether its Franks comments on TARP paybacks or Lackers over optimistic view of growth. But at the heart of the bear market beats the economic data which continues to dread tomorrow. With bankruptcies up 31% last year many see this as much worse in 2009 as jobs are lost and deflation follows. The most troubling disconnect between investors and politicians is the growing cry that Wall Street and Main Street are disconnected. But somehow the asset deflation we are living feels very much connected to the real pain of the global economy.

- Robert Savage, Goldman Sachs
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