The Importance of Being Earnest....or.....Not Letting Things Hit You Over The Head

It is coming. You can hear it. You can see it. You can even taste it in some instances. All you know is it is going to hit you hard when it gets here. It really dosn't matter what "it" is. It just matters that you see "it" before "it" hits you. "It" could be a baseball, a margin call, or a disgruntled employee. The only thing that matters is that you see "it".

Something that I see on the horizon of the markets is fear. I really don't think we have fully recovered from the idea that the fear bid is in the market forevermore. If they go down some gully in Pakistan and actually find Osama, that fear trade ain't going anywhere. Why? Because terror is now fully institutionalized.

You see, "it" in this case is fear. We are all fully invested in it. What Im wondering is what does that do to bonds and fixed income? If, indeed, fear is now with us forever, does that mean bonds stay here to, and any movement in this fear laden space is doomed to a trading range forever keeping the ten year under 5%? It certainly seems like it.

This all leads me to the conclusion that fear is a tax we have to level on everything form the GDP to the Fed Funds Rate. A modifier that ensures we dont get ahead of ourselves. It also creates an environment that I dont think any of us have ever had to deal with. An evironment based on the intangible nature of human fear response. The cure to which is only one thing. Politics and the leadership provided by the government. It is only with this that the fear trade disappears. Never before have politics so intertwined with finance.