Put On Your Selling Shorts This Summer
We’ve seen an almost complete reversal of market momentum, with the ‘deflation trade’ of late 2008 once again growing popular:
Thing is, moves to the downside often unfold five or 10 times faster than rallies – a sign that there’s little desire to buy into weakness.
The decline in risky assets has been violent. Treasury securities – of which there will never be a shortage – have been bid up aggressively. Yields on 10-year Treasuries have declined from 3.9% to 3.2% in a little over a month. This adds to the anecdotal evidence that carry trades – shorting Treasuries and buying corporate bonds and stocks – funded much of the rally in the S&P 500.
This summer should be the best environment for short selling we’ve seen since early 2009.