MorningWord 4/9/15: Where is My Mind?

by Dan April 9, 2015 9:30 am • Commentary

Lingering credit and growth issues in Europe and Asia have been the thorn in the U.S. economic recovery’s side for the better part of the last few years.  As for stocks and bonds here in the U.S. they have paid little mind, aside from a few fits and and starts, equity vol remains very near multi-year lows, and bond yields seem to have a ceiling at 2.5%, priming the pump for what else? More gains. It wasn’t until very recently that investor behavior in Europe and Asia (particularly China) have been cause for concern.  Last week in this space (MorningWord 3/30/15: Gambling in China) I wrote of the surge in the Shanghai Composite in the last few months that appears to have less to do with economic growth and more to do with investors’ appetite for gambling and their ability to play at a new casino:

Here is a chart of Chinese brokerage account openings showing the initial surge when the Connect was put in place in late 2014, and the parabolic move, from FTAlphaville:

From MacroBond

Its not just Shanghai, but the newly formed Connect between the mainland and Hong Kong.  The breakout in the Hang Seng Index might have been a long time coming, but the reasons for, and the way it has happened in the last couple trading days, to the tune of 11% at its highs, should be very disturbing to rational investors the world over:

HSI 6 year chart from Bloomberg
HSI 6 year chart from Bloomberg

The guys over at Bespoke are calling the last couple days action in the HSI the “Lightsaber” pattern. That’s not really bullish over the long term:

And then there are our European friends, where buyers of some 10 year debt are paying to hold it:

Our 10 year Treasury yield is 1.9% and the Swiss is Negative?  What sort of Bizarro investment world do we live in??  At this point we risk becoming immune to unprecedented financial goings-on. If you’re new to trading, you’ve met markets at a very strange time in their life.