Markets began the week nervous about a large supply of US Treasuries to be auctioned. The main worry was of higher rates if demand for the new debt proved thin. With so much riding on the level of interest rates right now, it should come as no surprise that the markets worry about these monthly auctions. But low and behold, the Treasury auctions were over-subscribed! Investors piled in en masse to purchase these abundant and historically low- yielding securities. Stocks, of course fell on the news.
Stocks fell because the unexpectedly strong demand for Treasuries led investors to surmise that the economic recovery may be in trouble. The demand for “risk-free” investments must be evidence of a lack of confidence in a return to economic growth and the evolution of investment propositions containing some modicum of risk. Isn’t Wall Street a great place?!
There are two main problems with the economic landscape: 1. deficits are immense, causing record debt levels to increase at a record pace, and 2. there is no political will or plan to provide anything other than short-term, politically expedient patches.
There isn’t a plan or a strategy for the future architecture of the US banking system.