How's That Risk Curve Doing?

As our friends at Bespoke Investment Group point out, the market suggests we are not yet ready for higher-risk equity investments.

Compare that present influence with Pimco's Bill Gross discussion on market risks, namely how demand shifts toward the inner circle of safety during a crisis, then slowly back out the risk curve over time.

Note there are many risk vehicles not in Pimco's analysis; not because they don't exist or aren't relevant, but because there are so many layers and instruments. The key point is that bonds are less risky than equities, and preferred stock less risky than common stock.

The real rally is still taking place in risk circles inside of common equities, and the sell-off at earnings suggests we aren't yet ready to see a strong rally in equity.

There's No Place to Invest Capital

“If you look at financial markets, say, look at how much the Treasury is paying to borrow today, there is a lot of confidence, not just of Americans but investors around the world, that we’re going to find the political way to do it,” Geithner said. “There’s no alternative for us. We’ll be able to do that.”

So that's the optimistic spin on the U.S. Federal deficits and stagnating economy. Bloomberg spins the facts by beginning their title with "Deficits Don't Matter...".

From our point of view, the historical low yield on U.S. Treasury debt in the face of record high deficits indicates the investment world is saying the global economy is so bad there's no place to invest capital with any hope of getting a good yield -- might as well bury it in the back yard until some opportunity presents itself.

If you're unemployed, you better start thinking about how you can start your own business, because Corporate America obviously isn't going to do it for you.

The Whipsaw Song, by The Trading Tribe

Can't pass this up -- five old fogey stock traders get down and dirty with some Kentucky blue grass written especially for market-a-holics.

Happy Fourth of July!



You can find out more about The Trading Tribe at their web site.