The Aqueduct

By: Erik Swarts | Sat, Apr 21, 2012
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The Aquaduct

When I think about where the equity markets are today, it's apparent that a large catalyst needs to occur to break the bond market's flood gate and open the psychological aqueduct to the equity markets. Considering the size of capital parked in that market, I can appreciate the logic of the bulls' thesis there.

It could be the game changer.

However, as evident in Spain this week, how will that money ever leave without a return ticket, if there is so much psychological and material damage constantly being inflicted on the system itself? If it didn't come out this winter in the long window of complacency provided by the central banks - I don't think it will get another opportunity any time soon. They may succeed at stimulating peripheral markets and asset classes for a spell, but violence begets violence - and I don't see an end to "the conundrum" Greenspan introduced to us so many years ago. Europe, China and a deflating commodity cycle will squeeze the emerging and commodity driven markets that carried us after the last round of the financial crisis and only reinforce the widespread asset deflation going on in Europe today. It will eventually run its course, just as water finds the path of least resistance - but from my perspective, that channeled catalyst is no where on the horizon.

Getting back to the equity markets, the obvious appears to be unfolding - just as it did in the two previous springs. Of course the devil is in the details, and if you look close enough - the undercarriage that brought us this far is corroding.

2010-2011 VIX SPX

2011-2012 VIX SPX

2010-2011 UST:SPX SPX

2011-2012 UST:SPX SPX

2011-2012 SPX CRB

2011-2012 SPX CRB

2010-2011 MSWorld SPX

2011-2012 MSWorld SPX

2010-2011 TNX SPX

2011-2012 TNX SPX

2010-2011 SLV:GD SPX

2011-2012 SLV:GD SPX

2010-2011 EWP SPX

2011-2012 EWP SPX

As apparent in the last series contrasting the price structure of Spain's ETF to the SPX, I believe a tradable low - similar to last March is unfolding. It will likely serve as the base to the equity market's final push higher through May. Less we forget, there is a rather large IPO coming to a neighborhood near you.

As always - stay frosty.



Erik Swarts

Author: Erik Swarts

Erik Swarts
Market Anthropology

Although I am an active trader, I have always taken a broad perspective when approaching the markets. I respect the Big Picture and attempt to place each piece of information within its appropriate context and timeframe. I have found that without this approach, there is very little understanding of ones expectations in the market and an endless potential for risk.

I am not a stock picker - but trade the broader market itself in varying timeframes. I want to know which way the prevailing wind is blowing, where the doldrums can be expected and where the shoals will likely rise. I will not claim to know which vessel is the fastest or most comfortable for passage - but I can read the charts and know the risks.

I am not a salesperson for the market and its many wares. I observe it, contextualize its moving parts - both visible and discrete - and interpret.

I practice Market Anthropology - Welcome to my notes.

Erik Swarts is not a registered investment advisor. Under no circumstances should any content be used or interpreted as a recommendation for any investment, trade or approach to the markets. Trading and investing can be hazardous to your wealth. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This is strictly for educational and informational purposes only. All opinions expressed by Mr. Swarts are subject to change without notice, and the reader should always obtain current information and perform their own due diligence before making any investment or trading decision.

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