DrStool Posted October 19, 2023 Report Posted October 19, 2023 It's such a momentous thing that I will lead off with it today. The bellwether 10 year Treasury Yield hit 4.98 this morning and still looks poised to go much higher. There's an intermediate cycle projection of 5.35. I turned bearish on bonds way back in September of 2020 when it was clear that the market had turned after the Fed began pulling in its QE horns. I have warned repeatedly ever since that the bear market in bonds would continue indefinitely as long as the Fed was doing QT, and in fact until the Fed went full QE again. Through the years of QE, I repeatedly showed how the Fed was only able to suppress bond yields by buying or funding 90% of Treasury issuance. When they started talking about tapering QE, I warned that the market could not sustain anything less than the Fed taking care of that 90%. In other words the market could only absorb 10% of issuance organically on its own while maintaining stable prices/yield. Then when the Fed announced that it was thinking about QT I warned that the bond market would get even worse. And it has. And it will continue to. Intermittent rallies notwithstanding. Maybe one of those rallies comes from 5% or maybe it waits until 5.35, or even 6. But look at this chart and tell me how you're going to be bullish on the bond market. And it has absolutely nothing to do with inflation. Nobody knows it yet, but prices have reversed and we're now in deflation. Just look at house prices and market rents. The idea that yields have anything to do with inflation is just wrong. Besides, nobody knows what inflation is anyway. They think it's the CPI. That's another thing I've harped on through the years. The CPI doesn't measure inflation. It was never intended to. It's an index that was built for suppressing the cost of labor contracts and government benefits and salaries. Only now it's working in reverse. It's very simple. The Law of Supply has not been repealed. It works. It has always worked, and it will continue to work until we are all sucked into a black hole and our molecules, atoms, electrons and other subatomic particles cease to exist. Dealers Pull In Their Horns As for stocks today, when the margin calls go out because of the bond market, they sell whatever they can to raise cash. The ES 24 hour futures have hit the latest 5 day cycle projection of 4295. But key spport lines are 10-15 points lower. Stay tuned. For moron the markets, see: When the Market Is Ready, an Event Will Appear October 16, 2023 Cycles Still Lean One Way, Not t’Other October 15, 2023 Dealers Pull In Their Horns October 14, 2023 Veal Market – Baby Calves Get Slaughtered October 9, 2023 Gold Breaks Down, With Long Term Implications October 5, 2023 Tepid Tax Collections Mean It’s the Supply October 4, 2023 The Rhymes of History September 24, 2023 If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam folder.
DrStool Posted October 19, 2023 Author Report Posted October 19, 2023 3 and 5 day cycles merge and make a low.
potatohead Posted October 19, 2023 Report Posted October 19, 2023 excellent comments this morning. Amazing how internet influencers, youtube stars, Fintwit "experts" and many others are a complete waste of time and energy to follow. One paragraph from you is worth more than 99% of the information many of these actors are pushing. My guess is that is 2 years most of these social media guys will be out looking for work.
DrStool Posted October 19, 2023 Author Report Posted October 19, 2023 1 hour ago, potatohead said: excellent comments this morning. Amazing how internet influencers, youtube stars, Fintwit "experts" and many others are a complete waste of time and energy to follow. One paragraph from you is worth more than 99% of the information many of these actors are pushing. My guess is that is 2 years most of these social media guys will be out looking for work. Thanks, as always! I wish that more people felt that way. 😉
DrStool Posted October 19, 2023 Author Report Posted October 19, 2023 Interesting double bottom here. If they can clear 4320 this afternoon, bullish. If not, crash potential.
WTF Posted October 19, 2023 Report Posted October 19, 2023 Need to include demand... and demand curves can shift... what might cause the demand for US bonds to shift... only the Shadow knows!!!
DrStool Posted October 19, 2023 Author Report Posted October 19, 2023 11 minutes ago, WTF said: Need to include demand... and demand curves can shift... what might cause the demand for US bonds to shift... only the Shadow knows!!! The economic law is The Law of Supply. In my research, of course I monitor demand. As I pointed out above the Fed was 90% of demand for Treasuries. There's no way the rest of the market can replace that, especially since money is the essential fuel of demand. The Fed provided the money, then it took it away, and keeps taking it away. This slow moving perpetual disaster was foreordained.
DrStool Posted October 19, 2023 Author Report Posted October 19, 2023 22 minutes ago, WTF said: Need to include demand... and demand curves can shift... what might cause the demand for US bonds to shift... only the Shadow knows!!! The only force big enough to reverse the trend is the Fed. The market has proven that it can only absorb around $20 billion per month, give or take. The Fed bought or financed the rest. Again, this was completely foreseeable. We knew that the market could not, and can never, absorb absorb $100+ billion per month in new supply. So nothing will change until either the US Government raises taxes enough to pay for the services that people want, or the Fed prints the money to buy the debt. The former will never happen in the US, but the latter is a certainty. What's uncertain is the timing. We'll know when they start floating trial balloons, or else if there's an all out financial crash.
DrStool Posted October 19, 2023 Author Report Posted October 19, 2023 That was impressive. Quite the beatdown on the breakout attempt.
WTF Posted October 19, 2023 Report Posted October 19, 2023 The supply of US government bonds are coming (at least for now) regardless of price... demand is where the money will be made... markets/ FED?... you could be on to something...
DrStool Posted October 19, 2023 Author Report Posted October 19, 2023 F'd up. Powell flaps his jaw and the market moves up and down in unison.
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