There are three extreme
happenings that have occurred so far in 2013 which I believe are wildly
under appreciated.
The first is the advance in the U.S. stock
market relative to inflation expectations.The second is the spike in
yields, with investment-grade credit ranking in the top three worst quarters
going back 30 years.
The third is the spread of
emerging markets to the S&P 500 being the widest its been since 1998 in the
absence of a 1998-like event.
Frustrating, indeed, for anyone
who tactically trades, although in some ways it’s good to have extremes happen
so one can bet on a resync. I have hit the emerging-markets trade over the head
numerous times, but I want to attack the mean-reversion thesis from a different
angle here.
