#1 - Greenspan WANTS Japan to stop supporting the US$.
#2 - Greenspan wants inflation
#3 - the trend is the trend is the trend is the trend
Why should it end in 30 days or 3 months or even next year?
Why do you think you can pick the top or the turning point.
Perhaps this is like the stock market clawing its way up and up and up and up last year. We peaked when bears finally threw in the towel. Perhaps that is when treasuries peak. Last summer we had a blowoff top on euphoria,, sentiment is decidely negative now, climbing a "wall of worry" perhaps.
You got mad when I smacked an article because I did not think the writer was a genius and you did. I repeat my claim: He totally 100% missed the boat. He was extremnely bearish in Sept right at the best buying opportunity we might see for some time on treasuries. That my friend is NOT the stuff genius is made of. Totally blew it. Soon to me is not 6 months.
No doubt at some point yields will rise back up close to 4 and treasury bears will be all over them again, only to get hammered on bad jobs again.
The trend is the trend is the trend.
Here is a snip from Today's Mauldin:
Dennis Gartman wrote the following, which I pass along to you, as it illustrates the complexity of the US and our global trade situation. It also sets us up for a lesson in trading and markets, as Dennis writes one of the premier trading letters anywhere, and clearly illustrates for us the mindset of traders and the hedge fund world.
"THE PARABOLA CONTINUES... FOR NOW: The one economic constant of the past decade has been this: the amount of Treasury securities held by the Fed on behalf of its 'clients' (primarily foreign governments) has been high and has been rising. In 1995 let's consider that the sum of these securities held in the Fed's custody was on the order of $800-900 billion. From a swift visual perusal of the data, we can reasonably say that the average for that year was $850 billion, and we'll not be far off. By '98 that had risen to $1.1 trillion (and it actually had leveled off there in mid-'97 and remained there through early '99.... the last time it was stable for any concerted period). By '01, it began to rise a bit more aggressively, making the beginning of what we shall consider the 'parabolic' move higher, averaging something on the order of $1.25 trillion. By '02 it was $1.35 trillion; by '03 $1.6 trillion and now it stands at a stunning, almost mind-numbing $1.8 trillion. The trend is up, and it is up at a steadily increasing rate.
"We can recall reading of those back in '97 who said that the custody account then at $1.1 trillion) was 'unsustainable,' and that the foreign government's that had purchased such large sums of US government debt would have no choice but to disgorge themselves of it, and when they did that disgorging would send US interest rates skyrocketing higher.
We had our suspicions then of that analysis, and we have our suspicions now. Eventually and inevitably this buying will end and a period shall come when the foreign governments will allow their securities to mature and not renew them. There may even come a time when they move to aggressively sell their securities before maturity. All we know for certain is that those who guessed nearly a decade ago that this process cannot continue and that the US government bond market would collapse were wrong - decidedly and very clearly wrong. If a trend in place shall tend to remain in place (usually for far longer than even the most confirmed adherent to that trend shall believe it possible), then $1.8 trillion will become $2.0-2.1 trillion by this time next year and perhaps $2.5-2.7 trillion the year after that. We know only that the trend will end when it ends and not a moment before. To speculate upon that ending is a waste of trading time and intellect. It is reasonable only to forecast that the trend shall continue a while longer; that those who've bet against it are wrong and shall continue to be wrong... but that we must be prepared to turn on a moment's notice when the trend has clearly been broken. As we are want to say, 'A problem is not a problem until it is a problem....then it's a problem.' For now, the parabolic rise in the Fed's custody account continues. That is all we know for certain."
Think about this for a moment. If you hold a private conversation with Gartman, he will allow that this is a worrisome trend from a macro-economic perspective. He has his eye on it, because he knows that it cannot continue. He knows that when it stops it will have huge ramifications on the bond and stock markets, currency and commodity markets that he trades. He just doesn't know when it will stop. Therefore, you trade the trend in place today, and be ready to change your mind and trade at a moment's notice. He is accepting of the fact that when the trend stops he is going to lose money (some of the profits he is making now). It matters not one whit to him. I do not know his personal record, but I will bet you a side dollar that he will be a very happy man if even 50% of his trend-following trades in a year are successful, as are most trend-followers. They cut their losing trades very quickly and let their winners ride. It is a risk management discipline that few ever learn, but those that do can do quite well for themselves and their clients.
And that is the way it is in the real world of traders. Just like Dennis, they pay attention to the macro issues, but they trade the trend. The fact that rising interest rates or falling dollars might hurt consumers and employment does not enter into the equation. They are trading a trend, and when big trends change, they can change rapidly. The dollar has fallen against the euro. Oil, gold, copper have all risen. They will continue to rise until the fundamentals force the traders to change. Then they will fall. Gold was in a down-trend for 20 years. It may rise another two years or ten or twenty. But it will eventually reach a fevered peak and fall. The question traders ask is how high will it rise before that time. They will rise the trend until it stops.
But what this means is that this global imbalance that I write and worry about, and tell you will be a big problem, will only become manifest when the trend ends, and then as Dennis notes, it will be a real problem. It will probably be a real problem much faster than we will be comfortable with.
If the rest of the world stopped buying our debt, interest rates might rise precipitously. That, of course, would not be good for the economy. The Fed, in speeches, has made it clear they would step in and try to smooth over any real breaks in the finance system, as watching a recession develop and doing nothing is against the central banking rules. But that means finding the key to the printing press room. Or, the US could become a nation of savers. Of course, that would mean the consumer based economy might suffer. That might mean a number of proposed solutions which would be worse than the disease. There is a reality to the old line that for every problem government solves, it creates two more problems. It becomes very complex.
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So you see - people have been wrong since 1995 on some of these trends. That is a long time. Now EVERYONE is convinced that this can not go on like this. Interest rates MUST rise!
Get back to me when everyone or nearly everyone thinks interest rates can stay low forever.
That is when they will rise.
That will not be 3-6 months IMO.
I am looking for a CUT.
The contrarian play remains to bet against common knowlege that rates HAVE TO GO UP.
Let me know when that sentiment changes.
If you think it is 3 months I think you are wrong. If you think it is 400 days, it is nearly useless info.
How is one supposed to trade off this:
this time, the bond market will crack within 400 days
or will it surprise us by cracking within 3-6 months
400 days is NOT soon.
If you think it is 3 months you can make a fortune betting against treasuries or Eurodollars.
As for me, I am staying put.
IMO We will not see a rate change without ample warning.
That means a bias change first.
A repeat of that bias change.
etc etc etc.
Jobs will be the driver.
That is the trend and betting against that has been wrong for some time.
Mish |
