Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
Gold Stocks Triple Breakout - 15th Dec 18
The stock market fails to rally each day. What’s next for stocks - 14th Dec 18
How Low Could the S&P 500 Go? - 14th Dec 18
An Industrial to Stock Trade: Is Boeing a BUY Here? - 14th Dec 18
Will the Arrest of Huawei Executive Derail Trade War Truce? - 14th Dec 18
Trump vs the Fed: Who Wins? - 13th Dec 18
Expect Gold & Silver to Pullback Before the Next Move Higher - 13th Dec 18
Dollar Index Trends, USDJPY Setting Up - 13th Dec 18
While The Stocks Bulls Fiddle With The 'Fundamentals,' Rome Burns - 13th Dec 18
The Historic Role of Silver - 13th Dec 18
Natural Gas Price Setup for a Big Move Lower - 13th Dec 18
How to Get 20% Off Morrisons Weekly Supermarket Shopping - 13th Dec 18
Gold Price Analysis: Closer To A Significant Monetary Event - 13th Dec 18
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18
Rising US Home Prices and Falling Sales - 8th Dec 18
Choosing Who the Autonomous Car Should Kill - 8th Dec 18
Stocks Selloff Boosting Gold - 8th Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

US Bonds and Related Market Indicators

Interest-Rates / US Bonds Jun 19, 2017 - 03:28 PM GMT

By: Gary_Tanashian

Interest-Rates

The June 18 edition of Notes From the Rabbit Hole has a few less stock charts this week in order to ramp up the macro talk, which appeared periodically through the report; but especially in the Precious Metals and Bonds segments. Excerpted from NFTRH 452…

Bonds & Related Indicators (and more macro discussion)

The target for TLT continues to be around 129. Treasury bonds are in bull trends (remember back a few months ago to all the bond hatred in the media). How does an eventual decline in bonds square with what we just noted above regarding Q4 2008? [work done in the preceding Precious Metals segment] Treasury bonds were a wonderfully bullish asset during Armageddon ’08 and who’s to say that an upside blow off may not be coming sooner rather than later amid massively over bullish sentiment? I mean, there is certainly no stop sign at our 129 target. Sentiment, as we are all too aware, can take a long while to manifest in pricing.


And that sentiment (and CoT) data are still pointing to a bearish bond future. Public optimism is still extremely over bullish on the 10yr bond.

Graphics courtesy of Sentimentrader

Commercial hedging is still in a net short state, also bearish for the 10yr bond.

Now you will recall that the 30yr had been a holdout to the bear case as its Optimism and Commercial hedging data were only so-so, not too hot and not too cold. Well, public optimism is headed directly for the red line on the 30yr.

And Commercial hedgers are now net short the 30yr and driving it toward extreme territory.

Perhaps the 30yr will prove to have been a better timer when all is said and done. I don’t pretend to know the future, but am simply stating there is a scenario where the dynamics in Treasury bonds can also fit the scenario noted in the Precious Metals segment. If bonds blow off into a deflationary episode as they did in Q4 2008, what could come next is an inflationary episode, as it did in 2009. That would drive yields up.

Folks, my job is to illustrate rational scenarios and yours is to keep a grain of salt.

We have been using the TIP/IEF ratio as an ‘inflation expectations’ (IE) indicator. It has been declining for all of 2017 after rising in the Trump-fueled ‘fiscal reflation’ trade to end 2016. You can see how inflation expectations crashed in Q4 2008. To further the point made above we became bullish in that period, first on the precious metals, then on commodities (oil and copper, as I recall) and later, stocks. The gold sector bottomed in the depths of the IE crash and then commodities bottomed after the ‘V’ bottom in IE.

Graphics courtesy of the St. Louis Fed

Finally, let’s end with a dissimilarity to Q4 2008. Economic dislocations did not start happening until this [10yr-2yr] spread started to turn up and when it did turn up it was from much lower levels (sub-zero) than today.

People who want to be bullish on stocks often talk about how the stock market is fine until the yield curve becomes inverted. In 2007, 10-2 went sub-zero and wallowed along down there well into 2007, before turning up. With that came the first signs of stress as Bear Sterns and Lehman Brothers started to blow up.

The question now is ‘who says the curve has to invert before the next up turn?’

Is that an etched in stone law of economics and finance? Given the stimulants injected into the system post-2008 I would not make a bet that all need be symmetrical and logical to history. Regardless, the bottom line is that if the curve starts to turn up we can be on alert for a negative liquidity event. Thus far, the curve remains in decline and all appears fine, for now. But if inflation expectations continue to tank… ?

Subscribe to NFTRH Premium for your 40-55 page weekly report, interim updates and NFTRH+ chart and trade ideas or the free eLetter for an introduction to our work. Or simply keep up to date with plenty of public content at NFTRH.com and Biiwii.com. Also, you can follow via Twitter ;@BiiwiiNFTRH, StockTwits, RSS or sign up to receive posts directly by email (right sidebar).

By Gary Tanashian

http://biiwii.com

© 2017 Copyright  Gary Tanashian - 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.

Gary Tanashian Archive

© 2005-2018 http://www.MarketOracle.co.uk - 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

6 Critical Money Making Rules