epyphytes

There were all sorts of records in stocks and bonds last week with stocks having their 6 th best week in history, and bonds having their 10 th worst week. Strangely only once before have they moved with stocks up and bonds down this much, the week of March 21 2003 when bonds down 4.5 points and stocks up 54. Because of the small number of observaitons the expectations next week for the events singly or in combination are not meaningful.

However, one can say that in retrospect that this was a natural result of the increased liquidity provided by the Central Banks. They were able to get the stock market up , but in the process they raised the specter of inflation again and commodities went through the roof and interest rates had a climactic increase . Thus, the bond vigilantes come to the fore again and force the Fed to trot out their higher ups to say that they are very concerned now about inflation, this coming of course after the 3% rally in stocks so as not to hurt the market too much.

The key event in the climactic moves has to be the big brokerage house bail out. It always seems that the destruction of a big institution is the key to renewed success in the market. It was that way with the big commodities firm, the big Nobel Prize fixed income house, and also the big banks and brokerages of the past including Barings in two events separated by 100 years.

The epyphytes like the Orchids find it much easier to get to the light after a tree has fallen, so that they don't have to waste their energy in growing support structures of their own . Think of the countless businesses and opportunities for making money that will come now that all the weak assets have been or are in the process of being withdrawn from the asset pool.

The same thing happens when a Walmart enters a town. A few slow-moving competitors like Kmart might find their business depressed, and the local hardware store might find that many of its customers prefer the lower prices that Walmart offers. But these lower prices lead to increased spending and new businesses that arise that quickly fill the vacuum.

Such can be expected in the next several years in the stock market, until the weight of the epiphytes is so large that the limb breaks.