Talk Vs. Walk

Yesterday, BOE Governor Mark Carney and ECB President Mario Draghi both issued “unprecedented forward guidance,” promising to keep buying bonds and forcing interest rates low for the foreseeable future. Their concern has been the rise in long rates resulting from Fed Chairman Bernanke’s threat to “taper” his bond purchasing program, otherwise known as QEinfinity. The result was ahuge rally in European equities yesterday, the FTSE for example was up better than 3%.

This morning’s NFP report of 195,000 jobs added is seen as strong – above estimates – although weak in terms of what is needed for a real recovery. This makes Bernanke’s “taper” seem more likely, so bonds are being hammered this morning.  The $64 trillion question at this point is when do rising rates rein in the US equity market? It seems to me unlikely that high interest rates and the overvalued equity market are going to be bedfellows for long. One or the other is going to be forced out of bed, as gold and other commodities already have been. Taken with the poor internals of the equity market, this is very  much the 1987 setup.

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