The Week That Was

How do we even begin? What a week. I started last Monday thinking about the lyrics to the Judas Priest classic, "Some Heads Are Gonna Roll"... and roll they did, but only for a little while. By this past Friday, after rallying to one degree or another on a nearly day-by-day basis, the S&P 500 and Nasdaq Composite were barely down for the week. The Nasdaq 100 actually went green for the week. Treasury yields plummeted the week prior into last Monday, but then bond traders sold Treasuries all week long after that. Yields are not yet back where they probably belong, but traders realized that and took action. You did see the lack of domestic demand for last week's Ten-Year Note and Thirty-Year Bond auctions? Really, what a week.

Let's not forget. We're probably not "okay" just yet. The economy isn't in the clear just because initial jobless claims contracted one week to the next and the services side of the economy showed some growth. Sure, the macro was better last week than it had been the week prior... which is how traders across not just US, but global financial markets found themselves in a pickle just a week ago. Would I be surprised to see equity markets contract a bit this week? Of course not.

First there was a full week of soft looking US macro including a very weak employment report for July that probably overstated labor market strength. Then there was the surprise rate hike by what appears to be a panicked Bank of Japan. What are they to do? They don't know and neither do I. Japanese inflation is out of Pandora's Box and that economy is mired in a state of contraction. The yen was marching toward worthlessness, and the BOJ tightened policy, in order to put a bid under that beleaguered currency. The BOJ also provided hawkish guidance, while planning to at least halve the pace of their QE (yes, the BOJ is still doing quantitative easing) program.

Oh, and I haven't even gotten to the part here Warren Buffett's Berkshire Hathaway (BRK.A, BRK.B) sold half of that firm's well-known long position in Apple (AAPL). Pow! Like a shot, the yen carry trade popped, and traders around the world hit every bid for every asset in sight. The carry trade, a potential (probable) US recession or at least slow down, and Warren selling shares of Apple. Traders were looking for dark closets to hide in.