Thursday, February 2, 2012

Easy Come - Easy Go

There's a lot of easing going on these days by our monetary handlers. Here is quick look back from where we came from. 

During the first round of the financial crisis, the Fed turned the spigot wide open first - exerting pressure on the U.S. dollar. Today, a new dynamic is unfolding with the ECB opening the valve with other foreign central banks - thus, equalizing these monetary pressures.
And while its effects on our own interest rate and commodity markets have been similar to the previous periods of easings by foreign central banks, the equity markets have been walking to a different beat. Much of these recent divergences can be attributed to the rapid correlation break we have experienced since late October. This has allowed the equity markets cover to blow off in what could only be described as a disinflationary environment. Just remember that like a rubber band that was stretched with great energy during the correlation pull - it will once again exert its influence as it recoils back.