Draining...

China lurched again today. The Baltic Dry is down c45% from its June peak. Bonds have rallied and are close to their 3 month highs. Yet US and European equity markets are close to their loftiest levels. Go figure! I can rationalize the bond move over recent months. Previously, we would have expected bonds to sell off with the equity rally. However, given the dovishness of Merv and Ben, it makes sense that they haven’t been sold even though equities have been parabolic (buzzword). The lack of attention to China though? Less so. China is up, rally, rally, rally. It’s the growth story. China is down, ah don’t worry about it, it’s not such a big deal, and look, the rest of Asia hung in ok. And anyway, China rallied to the close so no big deal.

It all leads to a confusing old Marché…as demonstrated today. Europe opens down, and then rallies. Bernanke’s going to stay in. That’s a positive, showing faith in the incumbents. Equally, getting rid of him probably would’ve been seen as a positive too, injecting some fresh blood into the hot seat, full of potential for what could be. Remember the Geithner appointment inspired rally back in November last year.

Amidst all the confusion (or perhaps it’s just mine?), some things stand out to me. Among them, the fertilizer names look like they continue to be good shorts and the utilities on the long side in the pursuit of yield. Barrons ran an article yesterday talking of how expensive potash is based on the historical relationship with corn and soyabean prices. In India, you have lack of monsoons leading to lower sugar production and fertilizer demand is down there as a result. According the a release from USDA last week, corn prices are expected to fall next year as supplies hit new highs. It doesn’t take a great leap of faith to believe this will lead to less being planted and hence lower fertilizer demand.

Utilities stand out to me for their yield, in what continues to look like a lower for longer environment as far as rates are concerned, and they should provide a defensive haven in the event of a market fall. Telcos too could be attractive on the yield side and indeed JPM are pushing an out of miners, into telcos trade today.

Whether it’s the market which is draining or simply late summer sloth, who knows, but things aren’t looking much easier to get a proper grip on. Here’s hoping September brings some more direction and volume.