Some unborn sorrow, ripe in fortune's womb, Is coming towards me
The above quote is from Richard II, act 2, scene 2 and describes the general feeling of fixed income traders on Wall Street this morning. The activity of the last two weeks has been volatile, irrational, and emotional out of all proportion to the current news. At times like this, if you believe the markets are efficient (and I do in the long run) there is an implied warning to be careful. Markets are the collective judgment of millions of individual decisions reflected in current prices. Clearly there is lurking something that is creating unease. In August 2007 we saw the start of the financial meltdown which turned the US Securities markets into a Salvador Dali painting. There was a year of uncertainty and confusion while half the world thought everything was OK and the other half felt we were headed to the end of times. September 2008 showed who was right. Personally I believe the driver for the next crises is the condition of the banks in the US and the continued deterioration of the loan portfolio. Combine this with a lack of desire in Washington to address unemployment and it points to sluggish perhaps receding economy for the next couple of years.
We remain constructive on the bond markets. We are continuously looking for good opportunities and ways for our clients to improve returns. During times like this bond investors should look for every opportunity to upgrade their portfolios. Stay tuned