Closing Thoughts for the Week

The U.K. pension market came THIS close to getting wiped out after surging gilt yields triggered margin calls and a near collapse. The real risk in the short-term isn’t necessarily an economic downturn, it’s a fundamental systemic breakdown. There are rumblings that a major investment bank is on the brink of collapse. A government intervention could be the catalyst for a short-term melt-up rally.

It may sound like hyperbole, but it’s looking like something is really broken here. Jerome Powell acknowledged that a recession in the U.S. is probably imminent and won’t do anything to stop it. There’s just so little optimism out there. Who knows how high the dollar goes here. I still remain very disturbed by U.S. Treasury yields.

The August inflation report gave the market a good shake last week, but it may ultimately prove to be just what it needed. Investors appear to finally believe what the Fed has been saying for months and that could usher in the return of traditional risk-on/risk-off conditions. During volatility spikes is really where we’ve seen the return of traditional risk-on/risk-off behavior and Treasuries outperforming.