Despite fanciful talk of a "patriotic rally" for American share prices, financial gravity is bearing down on US equities.
Meanwhile, US equities continue to plunge, with all three major US indices deep in the red for the third consecutive day.
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With automation, the US equities market had evolved into a vast complex machine. one that was purposely well-tuned to the nuances of HFT scalping strategies.
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Looking at the number of borrowed securities over the past year, we can see a distinct difference between implied shorting activity on US corporate bonds, Treasuries and US equities.
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However a quick visit to the American funds website reveals that as of November 20, 2010 this fund actually held 76.3% in US equities, 16.9% in non-US equities, and 6.7% in cash and cash equivalents.
The current poor performance of stockmarkets reflects, of course, a reversion to the mean after the excesses seen during the dotcom bubble, when the rolling 25-year annual return of US equities reached a remarkable 16%.
So investors are getting a very different return source, but at the same time, since we are building these funds from the largest US equities, they are getting a very liquid pool of assets, something that they can trade.
To be fair, in the last month equities and US Treasuries have parted paths with precious metals.
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If they want to be exposed, they pay us to be exposed to equities without market timing.
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The total fund gives us the flexibility to go heavy on equities, or light.
However, Colas was perhaps smart to raise a flag on this one, which shows markets are acting unusually, and that tells us that uncertainty is still plaguing investors in equities.
Until the market sees the US making headway in closing its budget gap, and until the US economy starts hiring again, commodities and equities tied to the emerging markets are going to gain.
"Sentiment was upbeat yesterday as solid US earnings and new home sales data helped equities shrug off disappointing PMI data earlier in the day, " Gary Yau at Credit Agricole CIB said in a commentary.
It will acquire the equities and investment banking businesses from the US bank which filed for bankruptcy protection last week.
Investors looking for equities trading at a discount are more interested in US multinationals these days.
The good news for investors in overseas markets is that the shutdown of the US government for a few days means absolutely nothing to emerging market equities.
However, the fact that these vehicles underperformed the SPX by such a broad measure in the first quarter suggests to us that they are very much underweight the U.S. equities market.
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In terms of the greatest threat to the various asset classes, equity investors believe that European banking crisis contagion will be the key risk to global equities, while rates investors view the biggest risk to US, German and UK sovereign debt markets to be uncertainty over the creditworthiness of these countries.
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If equities drop enough so as to be a drag on the US economy, then the situation could get worse.
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"US liquidity concerns following the Fed minutes looks like the pin which will burst the recent bubble in equities, " said Mike McCudden, head of derivatives at Interactive Investor.
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