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Fed's Bond Market Tragedy Was Predictable and Predicted 9/28/22

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It's not like I just made this chart. We knew what was coming. 

z2alv

That's the TLT the 20 year Treasury bond ETF, a proxy for the bond market. 

I first posted this chart about a year ago methinks, but the fact is that I have been stridently, shrilly, and persistently warning about the bond market since late summer 2020. 

Now, maybe we're closer to the end than the beginning, but there's still more pain to come. 

Markets Face Catastrophe as Dealers Mitigate Too Little Too Late

The Treasury market is obviously important in itself, but when it crashes and burns the fallout is devastating for all markets. We see it in stocks, crypto, metals, energy, and ultimately we'll see it in the economy. The markets go first. The economy follows. Which brings me to the fact that trying to divine what the markets will do by analyzing the economy is an exercise in abject futility. What a waste of time. But that's what Wall Street and all the academic and government soothsayers do. Waste our time. 

To divine the course of the market we must do only two things. Follow the Fed and follow the market. We merely need to follow the rules and there are only two. Rule Number One and Rule Number Two. Don't fight the Fed. And don't fight the tape, aka, the trend is your friend. 

There was a bit of derision when I said at the beginning of the year that, while cash was a terrible investment, it would be far better than anything else. Still true. 

That will change one day. But when? All we can do is follow the Fed and the trend. When they change, we change.

All the talk, and all the news that comes between now and the day that those two things change, are just fluff and diversion. Don't waste your time giving any attention to what the financial media is shoveling. Pay attention to what the Fed is doing, and draw those trendlines. That's it. That's all. 

Meanwhile, here's today's look at the hourly ES S&P 500 fuguetures. The 5 day cycle down phase has begun. It looks primed to get to 3550, pdq.  

z2bf2

However, the 2-3 day cycle projection points to "only" 3570.  Maybe if they get above 3645 they'll get a little rally going, but it won't amount to much.

Meanwhile, back at the big picture:

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5 minutes ago, fxfox said:

Bank of England buys long term GBP bonds

That news seems to be the cause for the upmove, look at GBP 1 min chart

It's starting. Emergency QE. 

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Will the BoE stand alone, or will its cohorts, Fed, ECB, and BoJ join the printfest? If so, it will eventually turn the markets but we could get 5-10 days of crashing equities first. 

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I concur with Doc's overall sentiment, although...I can't speak to the Fed part.  I usually just pretend they don't exist and for some reason that has always worked for me.  That is what I consider to be "the ART of Positive Thinking".  If enough people would try the same approach, perhaps together we could "visualize them out of existence".   Smile. 

Cash is king - for now.  Although...from the peak...short 'em if you've got 'em is my own underlying theme.  Short profits should be used to...stack cash...for the opportunities ahead.  If you can't short worth a damn...SH(and hold).

Bonds?  The TLT eh?  I'll add this chart as a quick reference...

1534392346_TLT-September282022.thumb.png.b3fad3bc9091ddbc19fee6ac12ae8e04.png

If I was to gaze into my crystal ball...It's hazy...and that could be because I don't have enough history on this issue to make a more decisive call, or it could just be the blurred vision, the brain fog or perhaps the percodan? 

Here goes nothing...

You're really in no man's land until 90.  Although, I'd personally like to see a reaction in here(anywhere is fine as long as it is "around" 100) on the TLT.  Then...a rally to 120 is what the textbook would call for.  Usually an "a,b,c up" or 3 wave advance...where it should stutter.  If that IS the case...stay tuned for part two where we talk about new all time lows.

If it just continues to meander down to 90(where there is longer term support)?  Not a bottom I'd buy.  Doesn't feel right...

Best,

TCG

oh...and...

If you've noticed...after we popped the KEY at 27 on the UUP I stopped commenting on the dollar. 

In markets that are clearly showing "bubble activity",  I prefer not to comment.  In the past...I usually just walk away entirely, but I think the dollar is a special case...otherwise, I wouldn't mention it at all.   For myself...I only have one major rule.  I don't do bubbles.  Why?  1) I don't need to.  and  2) As we peak...I like my head clear(and objective), that's simply not possible in a bubble. 

In all markets...I prefer to take a nice chunk out of the middle and leave the ends to the experts.

With that said...

The UUP is reminding me more and more of the SLV back in 2011(late 2010...wink, wink).  As mentioned...not a fan of bubbles and I don't want to comment on something that would help anti-goldbug investors. So...I'm just going to say this.

I'm watching 28(and change) on any reaction.

 If 28(and change) holds...to me...that would mean the FED isn't showing weakness/signs of a pivot and this bodes well for the secondary leg.  IF it doesn't hold....the next leg in the UUP?  Well...let's see what happens on the reaction(rest area) and I'll give it to you blow by blow until the next leg starts.  Then...I'd prefer to just fall silent on the dollar. 

No need to speak up when you know a  "call in gold...is a call on the dollar".

Quick chart...

1075336466_UUP-September282022.thumb.jpg.015296423bccbb83d333143ede0aeb2a.jpg

Psst...think of this as a small fractal...showing you the bigger picture and you'll be close to my true thoughts on the subject of...the dollar.  Think.

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I have no idea how the Pound/Gilt crack up will resonate through the London financial scene or what shape the big banks there are in. Well it's just stories.  Can the Fed save the BOE?  Got me. The BOE is like the Feds Grandfather and will do whatever it takes to save it. MAGA's don't care about any Special Relationship however. The will be putting up the wall at our shores and England will be set adrift.

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Guy Johnson on Bloomberg admitting this was a "stability move" not a monetary "policy move" for "market functioning." Pressed on what was "dysfunctional" he admitted they are bailing out the fixed pension market and that the bonds can't “find” a price that is “acceptable” to buyers. The words find and acceptable doing a lot of work in that sentence. Meanwhile:

 

"Bank’s Executive has postponed the beginning of gilt sale operations that were due to commence next week. The first gilt sale operations will take place on 31 October and proceed thereafter."

https://www.bankofengland.co.uk/news/2022/september/bank-of-england-announces-gilt-market-operation?sf170940617=1

 

QE on Tuesdays and QT on Thursdays. 🤦

Bloomberg: "Quantitative Confusion." 🤣

Bloomberg declares market "unviable."

We used to call these bond buyers - "bond vigilantes."

The rate of the 30-year dropped 86 basis points overnight!

 

System fragility created by central banks means their system can no longer tolerate monetary policy meant to fight inflation.

UK-Gilt-30-year-86bps.png

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