Tuesday, February 8, 2011

Ignore the Bond Market at your own Risk!

Sorry Folks,  I am a little bit under the weather.  The cold is getting to me!

A few quick points.  I am sure you know what I'll start with today...The 10 year bond of course!!:


Quick Take:

The spike occurred following today's 3 year bond auction which was pretty ugly.  The primary dealers ended up having to eat about 62% of it which is the highest percentage seen since 2007.

Also:

Something that should be considered even more alarming is yields on the short end of the curve also spiked.  Folks, if we lose the short end of the curve it's over.  I'll leave that one for a later post because I feel like crap.

Another interesting thing to note today was the move in gold:


Quick Take #2:

This makes no sense people.  Gold had two powerful headwinds that should have sent it lower today:  Higher interest rates in China as well as rising rates here in the bond market. 

Why the sudden rush into the yellow stuff at the same time real rates are rising?  Loss of confidence in our worthless dollar perhaps?   Enquiring minds would like to know.

The Bottom Line

The market continues it's rise despite signals out of the bond market that we are about to enter some rough water.

Their fear of course is inflation and a falling dollar.  For the shorter term all of this "funny money" liquidity is helping stock prices. 

However, over the longer term it will unfortunately bring us horrible inflation which is why you are seeing a mass exodus from the bond market.

I stick with my start of the year forecast.  The trend is likely higher until the March to April time which is when the end of QE2 approaches.

The Fed's Fisher is already out today vowing to vote against any extension of QE.  The posturing has already started and we are barely into February.  Imagine how heated this debate will become a few months from now!

Enjoy the ride for now because the Fed has your "back".  The bond market is about to change all of this so get prepared.

Remember, our already unaffordable housing market dies if the 10 year rises a point from here.  Let's face it, it's already on life support as it is.  Housing prices continue to fall despite the easiest monetary policy ever seen by mankind.

Stocks can only deny this reality for so long.   Enter at your own risk.


Edit:

An interesting take here from Newsy.com on the potential repercussions of the NASDAQ hacking scandal that was reported over the weekend.  Take a peek:


Multisource political news, world news, and entertainment news analysis by Newsy.com

2 comments:

getyourselfconnected said...

Bond market is crazy right now. Hard to make any sense of anything, as you note, metals higher as well. Crazy world.

Jeff said...

Robots do crazy things

Yesterday's trading volume was 40% lower than the last year and the trading volume today was lower than yesterday.

There is confidence in this rally but at the same time I think the bears are gun shy after getting their teeth kicked in so many times.

This gives the quants free reign on pathetic volume.