Tuesday, November 25, 2008

Uncertainty... The Only Thing That's Certain

Volatility continues in all markets. Here we'll take a look at what we've seen in equities and what it all means, as well as in "risk-free" Treasuries, of which investors may be in for a rude awakening at some point in the near future.

Equities (per

U.S. stocks posted the biggest two-day rally since 1987 after the government guaranteed $306 billion of troubled Citigroup Inc. assets and lawmakers pledged to pass another economic stimulus package.

The last two trading days provided the 12th largest two-day return in Dow history, according to Paul at Infectious Greed (my 11/24 figure is different as it's through the end of day). This must be a great sign, right? Well, 10 of the 11 larger two-day runs took place during the Great Depression. In other words, when markets are as uncertain and illiquid as these (in depression-like markets), expect large moves.

Interest Rates (also Bloomberg):
Treasuries rose for the first time in three days before reports that economists estimate will show consumer confidence held at the lowest level in more than 40 years and house prices extended declines.

It's good to see the volatility isn't only taking place in "risk-assets". HOWEVER, a Treasury sell off (i.e. rising) because consumer confidence may still be as bad as it has been in 40 years... when did that become a sign of improvement?

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