The Weak Hands are Falling in Love Again

The Entry Points

Below is a June 16, 2016 blog post discussing the massive bottoming process in US Treasury yields, meaning the massive topping process in the price. The original charts are below, but the following charts are updated (and easier to view). First is the bigger picture view of the 30 year yield showing the humongous, bearish bottom (top in the price). And remember all of the hysterical crap (news) in 2008-09 about QE to infinity, and how bonds (prices) were going to soar, because the “Fed was buying all the bonds”. Gold was going to the moon. And now the rationale/crap is the only reason the stock market has gone up because of QE. The second chart shows the time period of my post, June 16, 2017 (first arrow), and the huge yield support (second arrow). That is a “spring”. And here is my outlook in the post:  “And I said when referring to the bottoms “so far” because there’s still a good shot for both the 10 and 30 year yields to put in one more spike lower low bottom, (which I call a technical spring), as we get one more deflation scare.”   In other words, a good shorting opportunity turned into an outstanding one.

Why is it that the 30 year yield chart shown above is interesting? Because it’s exactly the type of setup which I have been discussing in videos. To summarize it – watch a good trade setting up, with specific things to watch for, and when you see it set up, then still be more patient and wait for a much better setup. It’s about waiting for the weak hands to start tripping all over themselves to buy, and then watch them get taken right back out in a sell stop run – and take your shot. And use the “news” as a sentiment indicator only, do not in any way consider what they are saying as having any value except as a contrary indicator. The media and most people on the internet are basically witting or unwitting mouthpieces for the weak hands to get themselves in trouble. Or put differently, the media are tremendous help to the strong hands, so learn to do the exact opposite of the weak hands, but only at the turning points. And use trusty old contrary indicators like Louise Yamada. She is widely respected and idolized on Wall Street. In December 2016 her “charts were telling her” that the bond market was a disaster. Right at the same time, I was buying bonds, extremely bullish, and my “charts were telling me” the exact opposite thing. Charts always look horrible right at the bottom. And thank you Louise for the “confirmation”.

I still own US Government Savings Bonds, which were quite a “bargain” for the few years surrounding 2000. Back then both the interest rates and the limits on the investable amounts were much, much higher. Savings Bonds and US Treasuries are both Government Securities, but they react much differently to rising interest rates, as issued Savings Bonds are unaffected by rates going either up or down. It is mind boggling why anyone would “invest” in US Treasuries, or any government bonds, going forward. Lastly, there will be an upcoming post on this, but the rally from the lows is running out of time, and the sentiment is turning bullish again. Speculative positioning (weak hands) are really ramping up their net longs, especially in the 10 year note. And strategists are now bullish because the “Trump agenda” is on life support, the technical analysts are seeing head-and-shoulder bottoms in prices, while others say the chart is looking bullish.  So Wall Street is falling in love with bonds again, after the big rally of course.

The original post is below:

What comes first – the end of the 100 year love affair with central banking which causes the mass selling of global sovereign (government) bonds or visa versa? They are both the biggest bubbles in the history of mankind and they are adjoined twins.

As I have stated several times in my outlooks, I believe that the global sovereigns are putting in a yuuuuuge, massive, monstrous top in prices, another words, a bottom in yields, but that the shorter term yields will bottom first, followed by the longer term yields with a long lag. Please refer to the first two charts below, courtesy of Jeff Gundlach of Doubleline Capital, (who BTW is one of only three well known big time money managers that I have any respect for in regards to their consistent and outstanding market performance). You can see the 2 year treasury yield bottomed in Sept.2011 with a yield of .15%, and the recent high was in Dec. at 1.1%. However, the 10 year didn’t bottom (at least so far) until July 2012 with a yield of 1.6% with the recent high being 3.05% in Jan. 2014. And the next 2 charts are the 5 year yield and the 30 year yield with the charts spanning ten years and showing what I believe is the massive bottom in yields. You can see the 5 year bottomed in July 2012, while the 30 year didn’t bottom (so far) until this past Jan. You can see the bottoming lag occurring from the 2 to the 30 years. And I said when referring to the bottoms “so far” because there’s still a good shot for both the 10 and 30 year yields to put in one more spike lower low bottom, (which I call a technical spring), as we get one more deflation scare. You can refer to previous outlooks for more details where I talked about that.

So why should we even care about all of this? Because this is exactly why I am so incredibly bearish on the world economy and so frightened for our future and why I want people to start preparing immediately. The destruction of the environment of complacency and total ignorance of how debt even works in society is going to have profound effects on all of us, including many industries, and all financial markets. The massive bear market in bonds will have huge ramifications for all of the industries which have relied on debt since this debt orgy started after WWII. All of you can figure out which industries that would include, but certainly real estate, college, all consumer items, etc. And the positive effects on the stock markets, precious metals, and commodities will be enormous.
There’s plenty of other effects that I haven’t even begun to understand yet, so please let me know your thoughts about that.