08 Jul Locking bias
Once again, global news is impacting our financial markets here in the US. This time, it is news from China creating volatility in the markets. China’s Shanghai Composite Index has declined by more than 30% in the last three weeks, while the ChiNext Index lost 42% of its value. The massive losses that have taken place occurred even while China made dramatic moves to prop up their stock market. The intensity of the losses certainly makes this a stock market crash in China. This is creating fear in the US, causing our stock markets to drop which will help support bond prices and hold interest rates in place. The impact here in the US stock markets is still relatively tame. When markets crashing in China (who holds a great deal of our equity and debt market) have only small impacts on our stock market, you know that our financial markets are operating in a bubble…
There has been minimal headway in Greece to solve their financial crisis. However, the leaders’ tone is becoming more accommodative after realizing that those holding their debt aren’t likely to give in to their demands. Greece now, “Welcomes the opportunity to explore potential measures to be taken so their debt becomes sustainable and viable over the long term.” The change in their tone provides hope that they will be willing to accept higher taxes, lower spending and potentially a later retirement for their citizens. However, with many already suffering from a lack of food and money to support their families, there is a growing number of people ready to accept being kicked out of the euro and wiping the slate of debt clean. We will have to watch closely and see how this develops.
There is still no clear direction for mortgage bonds. They remain trapped beneath a ceiling that has proven very difficult to break through. Now that bonds are back at the top of a sideways trading channel, the safe play will be to lock. If you choose to float, do so carefully and only if you are willing to accept the risk of the market deteriorating.