In the last 24 hours, a series of peculiar stories have grabbed my attention.
Short Term T Bills Go Negative — Yesterday and today both saw short term bill rates drop into negative territory. Paying Uncle Sam to give you your money back could be interpreted as a sign of extreme fear. Of course, if you were a large fund manager and thought that the safest place was in cash, you might be a bit nervous when it got close to your end of the year report for your investors. After all, your investors can hold cash just as easily as you can. So, to make it look like you are doing something, you load up on treasuries that come due just after the new year, even though it costs you a small amount to do it. If that’s the case, it’s a sign of window dressing. People pay more for good PR.
ICE Cancels DXY Trades After “Impossible” Action Moves Index 9% Higher, $ Plunge Enforcement Team Arrives At Crime Scene — It is possible that some of these trades were in error. The bulk of them were probably automatic triggers to delever. The CME decided to remove the trigger, and things look a little more orderly now. Consider this a warning, though: The carry trade unwind just happened in a minute. If not for the actions of the CME, we would be having a 1000 point down day for the DJIA. Most of the move would have happened on the futures exchange. Those of us that have to wait for the market to open wouldn’t have had an opportunity to cut our losses. Since it did happen, even if by mistake, this fuels my paranoia. A real shock can unwind everything just as fast.
Potential Ukrainian Default Spooking Markets — Sovereign defaults are scary in general. Combine them with widespread disease and political disputes over natural gas, and you have an interesting setup. This falls into my “European Bank” possibility of the next shoe to drop. Given how close the US is to our debt ceiling, I have to wonder what would happen if one of our big government guaranteed loans defaulted and a bank came to the government to pay out. I imagine that we have enough cash floating around that we could redirect funds from other uses. The game at that point would be to determine who drew the short straw.
All of these have reasonable explanations as to their causes and effects. Still, for my paranoid mind, there couldn’t be a better setup for collapse. The only thing missing from this is a scare on oil. Fortunately, the slightly stronger dollar is preventing that. If you find that a bit disappointing, don’t worry, the SEC is doing their part to set up a huge oil panic.
