As the number of undervalued securities disappear from the US market, I can't help but observe Mr Market's antics. This isn't to trade but rather for enjoyment.
Recently when the federal reserve announced possibly reducing the pace of quantitative easing, Mr Market had a small convulsion. The impact to the equity market is well known, however I find the impact to two other markets the most intriguing.
The long treasury bond dropped in price, raising the yield. Supposedly, this response is because Mr Market expects higher inflation in the near future. However, in a classic schizophrenic fashion, the price of gold also dropped significantly, implying expectation of deflation!
Only one these two avenues must be the right one.
For those who are so inclined could investigate the economic fundamentals and determine which of these are more likely in the near future-- deflation or inflation.
In either case, insurance to protect from either of these scenarios is available for cheaper than it recently was! Gold is the classic inflation insurance; while US treasuries are the deflation insurance of choice.
Disclosure: no position.
