Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How to Capitalise on the UK and US Bond Markets Blood Bath of 2023

Interest-Rates / US Bonds Oct 10, 2023 - 10:24 PM GMT

By: Nadeem_Walayat

Interest-Rates

This is the final part of my extensive analysis Inflation Bond Fire of the Vanities Breeds Opportunity that was first made available to Patrons who support my work. So for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $5 per month, lock it in now at $5 as this will soon rise to $7 per month for new sign-ups. https://www.patreon.com/Nadeem_Walayat.


STERLING

YES all currencies in free fall but for the time being at least the UK is showing relative strength against the dollar (dead cat bounce), it will eventually weaken once more to fresh lows. However as the above illustrates it is all smoke and mirrors, why I don't fuss too much over the fx rate that I buy US stocks at because at the end of the day CASH IS LOSING VALUE regardless of the currency it is denominated in! So it's a bit of a fools errand to wait for sterling to rise before buying US stocks as we have witnessed during the past 9 months.

Still to eek out that extra few percent it can be prove a useful short-term exercise to have a rough idea where sterling is going, one of the check boxes to tick off in our pursuit of maximising profits.

Stocks Bear Market Max PAIN - Trend Forecast Analysis to Dec 2023 - Part1

I would not be surprised if Sterling is above 1.30 by the end of 2023, with my central best guess being around $1.27 by late 2023. So I consider sterling today at $1.11 as being cheap in terms of the longer term outlook i.e. due a cyclical bull run within a secular bear market.

GBP peaked at $1.315 and then entered into a correction targeting $1.25 with probable overshoot towards $1.235, so about 2-3% worse than current £/$1.27 which thus should not prove much of a factor in terms of accumulating a dollar bond position. However sterling is still in a bull market so the correction is likely to resolve in a new bull market high beyond £/$1.315, against which 1.33 would be 5% better, thus if US bonds hold at current levels then would be 5% cheaper in sterling terms, so suggests better to accumulate gradually over a number of months though the opposite is true for UK bonds, i.e. to accumulate current sterling weakness, as rallying sterling would push downwards pressure on long rates.

For immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $5 per month, lock it in now at $5 as this will soon rise to $7 per month for new sign-ups. https://www.patreon.com/Nadeem_Walayat.

Also gain access to my most recent analysis -

And gain access to my exclusive to patron's only content such as the How to Really Get Rich series/

Change the Way You THINK! How to Really Get RICH Guide 2023

Here's what you get access to for just $5 per month -

※ Patrons Get FIRST access to all of my In-depth analysis and high probability Trend Forecasts, usually 2 full months before the rest of the world. Notified by Patreon by email as well as posted on this page and I will also send a short message in case the extensive email does not make it to your inbox.

Access to my carefully constructed and maintained AI Tech Stocks Portfolio that is updated on an ongoing basis, that includes on going commentary and a comprehensive spreadsheet that features unique innovations such as the remarkably useful EGF's.

A concise to the point Investing Guide that explains my key strategies and rules

 Regular content on How to Trade & Invest  incorporated into most articles so as to keep patrons eyes on the big picture and net get too sucked into the noise of price swings.

 Access to my comprehensive How to Really Get Rich series of articles, clear concise steps that I will seek to update annually and may also eventually form a Patrons only ebook.

Access to conclusions from my ongoing market studies from a total of over 200 conducted studies over the decades. updated whenever the market poses a question to be answered. Also enjoy the fruits of R&D into machine learning such as the CI18 Crash indicator that correctly called both the pandemic crash (Feb 2020) and the 2022 bear market (Dec 2021) well before the fact.

Join our community where I reply to comments and engage with patrons in discussions.

 I will also keep my Patrons informed of what I am currently working on each month.

 Influence over my analysis schedule.

My objective is to provide on average 2 pieces of in-depth analysis per month and regular interim pieces of analysis as market briefs. So over a 12 month period expect to receive at least 24 pieces of in-depth analysis. Though my focus is on providing quality over quantity as you can see from the extent and depth of my analysis which I deem necessary so as to arrive at that which is the most probable market outcome.

So for immediate access to all my analysis and trend forecasts do consider becoming a Patron by supporting my work for just $5 per month. https://www.patreon.com/Nadeem_Walayat lock it in before it rises to $7 per month for new signup's.

Investing in UK and US Bonds

And we arrive out our final destination, one of where doom and gloom prevails, most fear much higher BOND market interest rates! Where we have the likes of Bill Ackman literally announcing he is shorting US bonds AFTER they have fallen! Where were they a year go when that was the time to short bonds?

Just as 9 months ago we had clown Cramer declare that the FAANG's were DEAD, META at $100 was FINISHED that prompted patrons to ask me if they should sell their META and buy something else. I can't tell you what to do in the depths of draw down hell, all I can tell you what I am doing which was to buy more META! There is the weight of mass media, unsocial media, blogosfear, knownothingtoob, and twatter vs the metrics of good companies trading at deep deviations from their highs, all one can is to KEEP CALM and CARRY on BUYING AI Tech Stocks! What else can one do? Can't go off on a tangent against an avalanche of EXTREME FEAR MONGERING without end, virtually all of which will be forgotten some months later when stocks did the exact opposite of what almost everyone expected them to do,

Of course Ackman is puling a con trick on the general public by declaring he is shorting bonds because he probably shorted them in stealth mode many months ago and now wants the lemmings to jump onto the short trade so that he can exit his short positions at maximum profit, This is what you are exposing yourselves to when you watch the CNBC cartoon network!

Anyway the metrics say to expect lower long bond market interest rates as that is what the powers that be seek to manage their debt bubble, against which we have the screams of a bond market debt deflation apocalypse.

Yield Curves

At the late 2021 peak of the stock market the US short end yield was zero, long end (20 year) at about 2%. so the yield curve was normal. By the time of the bear market low was starting to invert, with the short end 3.5% vs long end 3.8%, fast forward to day we have the short end at 5.5%, Whilst most recent yield action has seen the short end and the long end nudge higher, hence offering an opportunity to accumulate near the bond markets lows.

In terms of price volatility one seeks the longer end i.e. 10year and 20 year, as the short dated bond funds are not going to be volatile enough in terms of price, whilst there may be some that have been but that would be as a function of fund manager incompetence so unlikely to see any recovery.

The bottom line is that as we have seen over the past month (green vs blue) US yields should continue to nudge higher across the curve and thus allow one to accumulate as bond prices drift lower. We will only know the yield junctures with the benefit of hindsight but given the amount of debt that the US accruing I doubt we are going to see the 30 year rise from 4.21% to 5.5% as Ackman espouses.

Whilst the UK is forced to play follow the Fed lower despite having a much weaker economy that lends it self to earlier and deeper cut in yields, in fact the UK yield curve is already showing strong signs of responding to this which is why I have been iterating target bond funds for some weeks. For instance back in October 2022 as soon as I saw that Bond market was collapsing I tried to buy GILTS both via II.co.uk and AJ Bell and neither would let any orders go through, the market had effectively been frozen. Though I am sure it would have been possible to buy bond funds at the time had I then taken the time to look deeper into bonds.

So the range of target bonds are UK and US 10 year and 20yr.

IBTM.L
IBTL.L
GILTL
3GIL

Why did I pick these bond funds listed on the LSE, primarily because they can be bought within tax free wrappers such as ISA's and SIPPs, yes I know GILTS are free of capital gains tax but I don't want to invest in individual illiquid bonds. Still GILTS can prove useful for UK investors OUTSIDE of tax free wrappers.

Bottom line rates have been capped by Fed Wizard of Oz via smoke and mirrors such as the reverse repo balance that is now being drawn on to depress yields as the US treasury floods the markets with over $1 trillion of bonds over the coming months, soon to be accompanied by QE to suppress the yield curve which is why all those fantasising about yields soaring to the likes of the late 1970's are going to be proven wrong. The higher the debt burden the lower the yield! Ackman says 30 year yield will trade to 5.5%, more like 3.5% if not lower!

And then there is the SAFE HAVEN element of US bonds and UK bonds to a lesser degree, everyone appears to have forgotten that there is a banking crisis underway which is why the Fed reversed QT in March and effectively announced a blanket guarantee for all depositors regardless of size to prevent a run on the banks!

This is the problem with the banking crime syndicate and is a function of the quadrillion derivatives market where bets are piled on top of best piled on top of bets, we don't know where the problem is until the banks start to implode! The banks gamble and then lose and the Tax payer steps in to bail them out resulting in perpetual counter party risk that encourages fund flows into the safest asset, US bonds. Though cash flow rich AI tech stocks as we have witnessed this year are also a safe haven!

Government bonds are a safe haven and given that we are heading into a recession, and given that rates are high, hence yields should drop. Of course as occurred September 2022, there is the risk of volatility in bond markets as well. There in lies the risk vs reward, there cannot be the potential for a 50% reward without any risk, if can not stomach any risk then just park your funds in a money market account and let inflation erode it's value,

Thus as I have already mentioned for several weeks I settled on these 4 bond funds that offer varying risk vs reward over a 2-4 year time frame. Yes it will have to be bond funds rather than actual bonds which tend to be illiquid, 2 UK bond funds and 2 US bond funds that as combined portfolio I seek a 50% return from over 2-4 years, which is pretty good considering these are bonds and not stocks!1

IBTM.L £135.8 - US Treasury 7-10Yr - US Equiv - IEF $95

This bond fund is down 29% from it's high with potential upside target of £175 for a 27% gain over a target 2-4 years, so a lower / risk lower return component of the portfolio. I've been accumulating since £139 with limit orders ever £1 lower, as well as timed based buys.

IBTL.L $279- US Treasury 20+yr - US Equiv TLT ETF

Peaked at $523, collapsed to it's recent low of near 50% to $276, imagine all those who swallowed the financial advisors and media sales pitch to be 60% in bonds because they are 'lower risk' then stocks! This is HORRIFIC! MORE THAN DOUBLE THE RISK FOR A FRACTION OF THE RETURN OF STOCKS! HORRIFIC! Still it gives a higher volatility potential to accumulate into right now. Potential upside over 2-4 years is for $422 for a 52% on the current price!

UK BONDS

GLTL.L - £39 - UK Gilts 15+Yr

UK bonds have been obliterated, portfolios built up in bond funds over the past 10 years have been wiped out! Now you know why I have avoided bonds. Pittance in return during their bull market followed by a spectacular collapse, all whilst the lemmings encouraged stock investors to seek safety in bonds! This bond fund has COLLAPSED BY 60% off its high of £82! Imagine those who had parked the bulk of their cash in such funds by following the advice of FA's! Only discovering the catastrophe when they get their annual statements, A lot of TV's will have had remotes thrown at them! This is why there is no FREE LUNCH! It is YOUR MONEY it is upto YOU to DO THE WORK and understand what you are invested in else PAY THE PRICE of a 60% wipeout in what is supposed to be an ultra safe low volatility asset! When the exact opposite is true! If you lost similar on UK bonds then it's your fault for being LAZY! DO THE WORK!

Anyway bond market collapse breeds opportunity and I have been accumulating sub £40, yes it could spike lower, it could revisit £35 or even go lower, but we will only know for sure in hindsight, without which I am focused on accumulating under £40 with limit orders ranging down to £30. Upside potential is first £60 and then £65 for a potential 55% to 65% return over 2-4 years.

3GIL.L - £72.5 - 10 Year X3 Leveraged

The higher risk component for this mini bonds portfolio, one that is suited to scaling in and out (trimming), Already accumulating at £68 and trimming at £78 has yielded a 15% return which is my strategy for this leveraged bond fund, accumulate during the dips that could potentially trade down to £60 for distributing during the rallies that target £100, that's a 66% spread! Where even a fraction of which could deliver 30%. For buy and hold the target would be £100 for 42% off £70 and £133 for 90%. In terms of percent of this mini bond portfolio I would not go over about 15%, even though I am personally tempted to do so, it is levered so higher risk.

Remember to keep things in perspective, bonds are a trade / side salad, meat and potatoes are -

1. Housing

2. Stocks

So don't get carried away with bonds.

Talking about housing, during 2022 clown Burry amongst many others and clueless utoobers were warning of a housing crash on par with that of 2008 prompting comments from patrons in response to which I did the UK housing and interim US housing article to calm the brewing panic continuing into recent articles of a few weeks ago that UK and US house prices
will be HIGHER a year from now then where they stand today, so good luck to those waiting for a crash to buy! It ain' t coming any time soon, and probably not for the remainder of this decade! Which just goes to show how dangerous MSM truly is as a consequence of the PERMA FEAR that it peddles. MSM IS DANGEROUS, Journalists and academics are vested interests in theories that just do not work!

Whilst stocks have soared to become expensive, hence due a correction. However there are pockets of value out there such as the Chinese tech giants, as ALibaba illustrates, there is a floor under this stock, coupled with good metrics eventually Alibaba is going to trade to new all time highs! So very little downside risk coupled with huge upside potential. I am 137% invested, what I need to ensure not to trim too much too early, similar for Tencent 124% and Bidu 110%. I recall clueless Cathy wood sold completely out China near the bear market bottom. Bottom line we got the potential for a good bull run over the next 2 to 3 years.


(Charts courtesy of stockcharts.com)

The only thing that counts are the mega-trends, of which INFLATION is primary!

Instead turn on MSM and you hear tripe of disinflation, falling prices, risk of DEFLATION! it's SO MORONIC! The exact polar opposite to REALITY! The great irony of investing is that most investors don't buy when CHEAP instead they FOMO buy when expensive! And I know I am going to hear contrary arguments in the comments but Nadeem this analist or that analyst said x,y,z so how can Bonds ????

What else is hated right now that most are too afraid to accumulate?

REITS! There are two in my mini US housing portfolio.

AI Stocks Portfolio

Portfolio 77.5% invested, 22.5% cash, so positioned to accumulate during the correction.

https://docs.google.com/spreadsheets/d/13gDntQuyDP3db7WqEvOXftOxVVTJyYyB_s-O0XW2EIk/edit?usp=sharing

Taiwan's Doomsday Weapon Against China

And no this has nothing to do with semiconductors. We all know that Taiwan has spent the past 50 years preparing for a CCP invasion, armed to the teeth with latest weapons that would exact a heavy price on China should Emperor Xi seek to permanently cement his name in history by taking Taiwan and opening the Pacific to the Chinese fleet. An assault on Taiwan would prove hugely costly in terms of destroyed lives and military hardware. However given the weight resources that China can bring to bear it would only be a question of time before China took Taiwan with or without US committing forces, not unless the US is willing to sacrifice it's entire Pacific fleet in the defence of Taiwan.

However, the current floods ravaging China, collapsing many bridges, killing many thousands of people that includes flooding of Tiananmen Square has prompted me to investigate a potential doomsday scenario that Taiwan could deploy against China, and I mean literal doomsday that would be on par with the use of over a dozen nuclear weapons! Which would be to BLOW-UP the 3 Gorges Dam that would unleash a destructive flood onto the cities of central and eastern China effecting over 400 million people, destroying much infrastructure and killing many tens of millions of people and that would instantly cripple China's economy and war machine as the nation would be thrown into total chaos in attempts to deal with the catastrophe thus leaving Taiwan to successfully defend itself. However it would be doomsday for Taiwan as China faced with such a catastrophe on par with what it would experience during a nuclear war would likely retaliate with the use of nuclear weapons against Taiwan.

Thus Taiwan has a doomsday weapon one of mutually assuring the destruction of both China and Taiwan and thus will increasingly factor into Taiwanese military doctrine to deter a Chinese attack. The problem though is that Emperor's tend to be surrounded by Yes men who only tell the emperor what he wants to hear, much as Czar Putin ahead of the Ukraine invasion that it would all be over in just 3 days! The risk is the same in a war between China and Taiwan that Emperor Ping completely misses huge risks to China.

All Taiwan needs is a battery of several hundred cruise missiles that are able to reach the three Gorges Dam, and as we have seen with Ukraine there is no defence against Supersonic missiles. Whilst China is going to have to build a lot more subs given the number that were washed up during the recent flood.

For Immediate first access to ahead of the curve analysis as my extensive analysis of the stock market illustrates (Stocks Bear Market Max PAIN - Trend Forecast Analysis to Dec 2023 - Part1), that continues on in the comments section of each posted article, all for just 5 bucks per month which is nothing, if you can't afford 5 bucks for month then what you doing reading this article, 5 bucks is nothing, if someone did what I am doing then I would gladly pay 5 bucks for it! Signup for 1 month for a taste of the depth of analysis that cannot be beat by those charging $100+ per month! I am too cheap! Hence the price for new signup's will soon rise to $7 per month so lock it in now, $5 per month is nothing for what you get access to so at least give it a try, read the comments, see the depth of analysis, you won't be sorry because i do do my best by my patrons, go the extra mile and then some.

S&P

Targeting 4600 Mid Summer 2023 Top, followed by correction into Mid October.

Also gain access to my exclusive to patron's only content such as How to Really Get Rich!

Change the Way You THINK! How to Really Get RICH Guide 2023

And my most recent article - Quad Witching Cracks Stock Market Nuts

Again for immediate access to all my work do consider becoming a Patron by supporting my work for just $5 per month. https://www.patreon.com/Nadeem_Walayat lock it in before it rises to $7 per month for new signup's.

And ensure you are subscribed to my ALWAYS FREE newsletter for my next in-depth analysis.

Your trimmed the FOMO to buy the Dip analyst.

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2023 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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 trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2022 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