Did credit market turmoil rattle equity markets…again?!

I watched with fascination as short term government interest rates plunged on Wednesday and Thursday. But, to my surprise, equity markets barely reacted.

Then along came Friday.

I don’t think the anniversary of the 1987 stock market crash had a thing to do with it, but I do think interest rates had something to do with it–like they did in 1987.

When I see short term Treasuries surging in price and their yields plunging, that means that someone, somewhere is scared and they are running to the safest securities they can find–US Treasury securities of short duration.

Whenever this happens, like it did in August, it means risk is becoming more expensive. And, when that happens, equities will almost always dive.

Why did it take a couple of days to work out? I don’t really know.

Perhaps the same people running to safety were hoping things would cool off, but they didn’t. And when risk continued to be more expensive, then they started selling equities.

Perhaps some leveraged investors, like hedge funds, were squeezed by the people who lent them money as credit markets seized up again.

Who knows?

But, I do know you could see it coming, and it didn’t surprise me (except that it took so long).

Its amazing to watch this because it shows how integrated financial markets are.

Anyone watching short rates plunge on Wednesday and Thursday had to scratch their head and wonder why equities weren’t tanking. That is, until Friday–when they did.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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