Date: Mon Dec 27 2004 13:09
trotsky (WileE@bonds) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
for the past four years, the Merrill Lynch survey of global fund managers has reported a solid majority of bears on US bonds every year - so the slice of the market represented by the Rydex funds is indeed a statistically significant bit of information. note that in 'normal' times, the Rydex govt. bond fund's assets used to be two to four times HIGHER than those in the fund shorting bonds.
you write:
"At the end of the move, I think you will be seeing advisors say "you must sell all bonds; portfolios should be zero weight in bonds; interest will never make up for principal losses." These are the things I am saying now as a bond grizzly bear--but I don't hear anyboday else saying this."
well, if we'd hear stuff like that on top of the evidence we already have it would be time to fall out of the chair. after all, the bond market has been in a solid uptrend since 1981/2 , in a well-defined channel that hasn't been violated even once. the things you want people to say are heard at the end of a BEAR market, in fact, the HAVE been said in the late 70's/early 80's. but there is no bear market in bonds, so why would people say them? the point about bond sentiment is how bearish it is in the face of an unbroken secular uptrend. it is this dychotomy, an obvious ( on the charts ) bull market, that is accompanied by enormous skepticism that is worthy of note.
this is not to say that there can't be profitable counter trend trades in this market - in fact, the CoTs suggest that in the near term, bonds are due to correct, and the counter trend moves in the secular bull have often been quite large ( cyclical bear markets in the context of the secular bull market ) . but there is NOTHING - not one shred of evidence - that says the secular move is over.
Date: Mon Dec 27 2004 11:46
trotsky (frustrated@bonds) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
we're due a correction at the long end of the curve since the specs in the futures markets remain fully positioned for further curve flattening - a trade that will imo be gradually unwound over the next month or two. news of stalling foreign CB demand serves as a trigger.
Date: Mon Dec 27 2004 11:41
trotsky (the UK economic and rate cycle) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
leads the US cycle by a few months. in the UK, the consumer recession appears to be beginning:
"'Worst Christmas for 25 years' as store sales drop
Julia Finch, city editor
Friday December 24, 2004
The Guardian
Retailers will be counting the cost today of a dismal festive trading season, which one City analyst has dubbed "the most difficult and disappointing Christmas for 25 years".
Sales have fallen substantially short of expectations and many of the big-name store chains, which had been hoping for a last-minute splurge by consumers, are understood instead to have seen significant falls in like-for-like sales.
There was speculation among analysts yesterday that House of Fraser, Boots, WH Smith, Woolworths and Marks & Spencer were among the worst performers, with Tesco taking top honours for the highest levels of growth.
Retailers with a big internet presence are also said to have done well, with online sales double last year's levels as increasing numbers of consumers shun the high street in favour of home shopping.
New figures from the John Lewis department store chain released yesterday showed its sales were down 2% on last year's levels in the week to December 18. The chain took just under £79m over the week, compared with last year's record of £80.3m.
Gareth Thomas, John Lewis's director of retail operations, said spending had been "very high" over the last four days but were not enough to offset earlier shortfalls. He predicted that the final pre-Christmas sales total would be 1.5% down on last year.
But City analysts suggest others have fared far less well. Richard Ratner, of broker Seymour Pierce, said: "We reckon this has been the most difficult and disappointing Christmas since 1979... We believe sales will be down 2% to 4% over the month."
Consumer confidence has been hit by this year's five increases in interest rates and the end of the housing boom.
There was speculation that among the poorest performers in the week to last Saturday were Woolworths and House of Fraser, where takings were said to be down by up to 15%.
Marks & Spencer is said to have been down "at least" 8% in the same period, with some stores down by up to 20%. The fashion chain Next has also failed to match last year's impressive performance.
On Wednesday, the Financial Services Authority wrote to retail groups reminding them they must update the stock market if sales fall short of targets, rather than wait for the outcome of the January clearance sales.
Yesterday a House of Fraser spokesman said: "We do not comment on speculation but we are aware of our obligations to the market." Late in the afternoon the chain confirmed that its Christmas trading update was still planned for January 12.
Investors' attention will be turning to the sales after Christmas and whether shoppers will turn out in force to snap up bargains.
Mr Thomas refused to forecast the outcome. "Who can say after a season like the one we have just had, but there could be a high proportion of customers holding back until the clearances begin."
Date: Mon Dec 27 2004 11:29
trotsky (cowpoke@demographics) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
Japan, which is about a decade ahead of the US in its K-wave cycle , is also a good example of a similar demographic time bomb detonating.
one of the effects of the greying society is the growing need for income - safe income. return OF capital becomes progressively more important than return ON capital.
all indications are that the widely expected slump in foreign CB demand for US govt. fixed income will NOT have the equally widely expected effect on bond prices, since domestic demand will more than make up for it. in fact, domestic demand for USG bonds already seems far higher than generally thought. should the housing bubble burst for good ( evidence supporting that idea keeps piling up ) , a fresh source of demand will rush in - namely the commercial banks. currently, over 60% of bank assets are tied to mortgage lending. after the troubles in corporate credit land from '01-'02 ( Enron, Worldcom, Global Crossing, etc.etc. ) and the resulting downturn in commercial and industrial lending, the banks have gobbled up mortgage assets as a compelling alternative to make a buck on the steep yield curve engineered by the Fed in that period. to say they're now overexposed in this arena would be quite an understatement. should trouble in the form of rising defaults become more widespread ( think Denver going nation-wide ) , US banks will do what their Japanese counterparts did in the same situation: they will move their assets toward the safest debtor, i.e. the government.
Date: Mon Dec 27 2004 11:13
trotsky (@RYJUX) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
the Rydex Juno fund which bets on a rise in long term interest rates, currently has assets of just over 2.8 billion dollars. this compares to the 127 million dollar in assets parked in its opposite RYGBX, the Rydex government bond fund which bets on falling interest rates.
the ratio between the two is now 22.14, down from a recent interim high of 36. put differently, in the Rydex universe, the bearish consensus on bonds has fallen from 99.97% to 99.95% - a week after the Juno fund has hit a fresh all time low ( inverse Rydex funds suffer from slippage, since they also use options. thus they can hit new lows even though the underlying instruments have not yet hit new highs ) .
there has never been a more crowded trade in market history, with the possible exception of the Swiss Franc at the mid 2001 lows, when the gross big speculator long position in SF futures fell to zero ( i.e., every single trader with a reportable position was short the SF at the lows ) . the difference is of course that the Swissie had reached the end of a long downtrend, while the LT uptrend in bonds remains unviolated.
so bonds remain unique insofar as no market has ever before seen such unanimity of bearish opinion while it traded barely off multi-decade highs. normally the bulls are rampantly exuberant at similar points. in this case they're not only not exuberant, they simply don't exist.
Date: Mon Dec 27 2004 10:48
trotsky (P.Yorkie) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
"when compared to say rates over the last 30 years the yield is still low ( at 4.88 per cent last time I looked ) which hardly suggests that there is a great dollar inflation imminent to lend support for gold prices."
an examination of bond yields and gold prices over the past 4 years should suffice to debunk this statement. obviously there is no positive correlation between the two - which can be explained. we're not in the 1970's, which were the inflationary era culmination of a multi-decade uptrend in interest rates - we're at the exact opposite end of the spectrum. so why is the gold price rising? it always rises in deflationary eras - due to gold's status as the ultimate form of payment. iow, its safe haven aspect, coupled with the fact that extremely low interest rates lower the opportunity cost of holding it.
lastly, the statement that no great inflation of dollar claims is likely imminent is true - but one mustn't gloss over the fact that a huge inflation of dollar claims has ALREADY HAPPENED over the 22-year old disinflation era. during Greenpan's tenure alone ( '87 - '04 ) more dollars were created out of thin air than in the entire 200-year history of the US preceding his appointment. the deflationary era and the flight to gold are a result of this period of credit inflation.
"From a theoretical prespectice, low yields on the 30 year T bond represent one of the the loudest of all calls for rising stock markets."
while such a theoretical model exists, it fails to acknowledge that such relationships are in flux depending on the period of the long wave one is in. for instance, Japanese stocks have roundly ignored that very same 'loud call' for about 15 years running. when rates on the JGB plummeted from 8.5% to 0.40% between late 1989 to mid 2002, the Nikkei index declined from roughly 40,000 to about 7,500 points over the same stretch - a nominal decline of over 80%.
obviously when such a loud call goes so blatantly unheard to this extent for such a long time period, it is high time to examine the validity of the theoretical model issuing the call. it appears the model is so flawed that blindly following its calls can be extremely detrimental to one's financial health.
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