I see some storm clouds gathering on the horizon for the stock and bond markets.
The moves in the overnight Libor markets, which is the lending rate used by banks for shortest-term lending facilities between them, have moved much higher in the last few days.
Overnight bank lending is the mother’s milk of the banking industry to allow them to eke out profits.
Shortest term Libor rates have jumped 3.5% over the weekend, which is huge move as the rate has been constrained over the last eight years.
When you combine Libor moves with a strengthening dollar, these moves will put a crimp on bank revenues and increases in the cost of all loans from cars and mortgages to small business borrowings.
The markets have seen this and that could be what creates a pullback in stocks and sell off in bonds going into the year end.
If you combine this sell off with the window-dressing by hedge funds and money managers to book profits the Dow 20K crowd could be left wanting.