Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Party Is Over In The U.S. Treasury Bond Market

Interest-Rates / US Bonds May 30, 2014 - 06:30 PM GMT

By: EconMatters


Last Hurrah

Everybody knew the GDP number was going to be revised down on this reading, and that it probably gets revised up for the next reading, and Bond Traders used the Revision in first quarter GDP to take the 10-Year Yield down to 2.4% on a nice push, but this required a whole lot of ammunition, and as soon as Europe started to close at 10 am central time (Europe close is 10:30 am for practical purposes) the Traders needed to start closing some of these positions.

Bottom in the Bond Market

The 10-Year then went 7 basis points higher to actually end the day up, which in trader`s terms is an outside reversal, or a very bullish sign for 10-year yields going forward, this effectively is the bottom for the 10-year bond yield for 2014, 2015, 2016 and beyond.

Read More > The Bond Market Explained for CNBC

Mark this date in your calendars as the last time the 10-year Yield was this low, we mentioned in an earlier article about this market being a coiled spring, well just sit back and watch the carnage as everyone tries to run for the exits at the same time in the bond market. Grab some popcorn because this is going to be funny over the coming months and years as yields continue to rise, some poor sap actually bought a 10-Year Bond today at 2.41% Yield, and thought this was a good investment.

Stop Trading on 3 Month Old Data

Bonds should have never gotten this low, everyone and their mother is underestimating inflation going forward, and the idiots on the Federal Reserve are so behind the curve, still talking about data 3 months old. By the time they realize we not only have food and energy inflation, but that wage inflation is coming in the next three months if not sooner, the absolute wrong-footed Federal Reserve & Bond Market are in for the shock of their lifetimes.

Massive Outflows Coming in Bond Funds

Literally bond funds are going to see such outflows, there are going to be money managers and hedge funds going out of business on this chasing yield trade blowing up in their faces. Margin clerks will be tapping a bunch of folks on the shoulders the next 6 months and beyond on this massive unwind in bond markets.

I have never seen a market where so much money, and the consensus view is so wrong on this trade; the unpreparedness, the fact that not only do these people Not have an Exit plan, they don`t even know they need one on this trade.

This is like the housing market can never go down logic; that interest rates will never go to 4% in their lifetime unpreparedness. Remember the Fed Funds Rate was 5.5% right before the financial crisis in 2007, this is hardly a century ago, it occurred in the last 10 years.

Federal Reserve Members are Clueless

I used strong language when I called the Federal Reserve members idiots, but the more I hear these people talk about the economy, this includes Bernanke now that he is retired, I cannot believe these are the best and brightest economists that America has to offer, because they are totally clueless. Even the hawks on the Fed are behind the data curve by at least 3 months, inflation is here, they better start raising rates next week.

Equities Running on Inflation Power: Forget Valuations at this Stage

This is what the stock market is telling everyone, and I like everyone was waiting for a summer pullback, a bunch of Hedge Funds starting shorting the market in anticipation, going long bonds; but inflationcannot be held back once it takes hold, and equities are off to the races, there will be a short squeeze in equities going forward.

Once people realize what is going on with the reality that this cheap money has finally reached escape velocity with nowhere to go, and bonds are no longer an option once the realization that inflation is going to force the Fed`s hands, all this money is going to finally rotate out of bonds and into equities. We could literally see 2500 in the S&P 500, while the Fed tries to soak up this excess liquidity in the financial system.

I am not sure how it will play out in equities once Bond yields spike, but where does the money go? Does everyone just run to cash? There are two things I am solid on however, one is that bond yields are going to explode higher, and the other is that volatility is also going to go much higher, so who knows how this is all going to play out in the equity markets. Maybe bonds and stocks sell off together.

Yield Trade Pushed Down Volatility

The abundance of money chasing the yield trade has pushed down volatility, and as the yield trade unwinds there are going to be some volatility traders that go out of business as well. I just cannot fathom how so many investors and traders are currently poorly positioned for one of the biggest moves in markets coming down the pike since the tulip market collapse.

Bond yields are in a bubble all over the planet, and first you have food and energy inflation, then you have wage inflation to pay for the rising food and energy costs due to the final piece of the puzzle in the tightening labor market. The US exported a bunch of inflation to emerging markets over the last five years, now it is our turn to experience inflation as a result of too much cheap money in the system.

We are currently right at the tipping point of inflation, and nobody sees it at the Federal Reserve, why do you think there are all these minimum wage initiatives? It is because a loaf of bread costs $3-$5 dollars in the United States depending upon the market. Of course wage inflation is going to be the next shoe to drop!

Talking about an Exit Strategy, Isn`t an Exit Strategy

I am sorry it is very apparent that not only is the Fed behind the inflation curve, they literally are making Fed policy up as they go along, they have no exit strategy whatsoever, and more painfully obvious is that Wall Street doesn`t realize that the Fed has no exit strategy. The learning curve is going to be painful as always for Bond Holders, who will be the last fool to own a bond in their portfolio? There will always be some Bag Holder in financial markets, and this time it is Bond Investors or should I say Yield Chasers!

By EconMatters

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2014 Copyright EconMatters - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

EconMatters Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in