Loading ...There are numerous tells popping up all over. GL pointed out the delayed treasury auction.The spike in interest rates and stocks dropping are confirmation while neither is a surprise. The real BIG tell is what is happening with gold and silver. While gold is being managed and is bobbing up and down opposite the moves in equities, silver is showing excellent relative strength and is up over two percent on the day.
$TNX – 10 YEAR US TREASURY INDEX
A break above the neckline could confirm FED policy error. Interest rates to the moon?
If that happens, best not to expect business as usual.
$TNX – 10 Year US Treasury Yield Index – DAILY
TNX broke below the neckline of a mini SHS pattern and appears to be retesting the break down.
When yields go down interest rates are falling and bond prices go up. PM bulls would like to see TNX continue on a downward path.
TLT – IShares 20+ Year Treasury Bond ETF – DAILY
TLT appears to be sitting testing Support level near 140. When Bond prices rise $GOLD often tags along for the ride.
My gut feeling right now is the Gold market could be in for more misery. However, the BOND market has not confirmed a breakdown. Not yet, anyway.
C’mon Bonds, be good.
Some interest rate experts have predicted that the FED will eventually implement yield curve control. I wonder if they haven’t already begun to do so, clandestinely? The fact that interest rates have had a considerable move down from their recent highs has been “explained” by some, as verifying the FED’s nonsensical narrative, that inflationary pressures are only transitory. I suggest the decline is because the FED has basically begun their yield curve control operations in the treasury markets, without actually announcing it. It shouldn’t be long before the treasury experts confirm that is what is happening. If true, it is bullish for gold and silver and explains why they are breaking out.
The Repo market is broken. Again. This time because of lack of treasuries to short, so now there is a short squeeze in 10 Year treasuries.
What a system. Apparently there could be fire works at market open.
Interest rates collapse and the market explodes to the upside if the Fed reacts?
Blood bath if the Fed steps aside?
PMs too, one would suppose.
Pass the popcorn.
I admit my eyes tend to glaze over when the topic is Gov’t Bonds
All I know is as Bond prices drop ..Interest Rates Rise.
BUT at this point there is NOTHING more important to understand .
Here is the content of an email from Richard Duncan’s Macro Watch
I don’t subscribe yet but am thinking about it now.
THIS explains the situation so even a Bond Retard like me can get it.
A rout in the bond market last week sent government bond yields sharply higher and the price of a broad range of speculative assets painfully lower. For instance, Tesla lost nearly 12%. Even the price of Gold fell as low as $1,715 an ounce on Friday. If bond yields continue shooting up this week, the stock market and many other asset classes could very well suffer severe losses. So, what is the probability that yields will continue to rise? To answer that question, this week Macro Watch discusses the two most important factors that cause government bond yields to move: 1. The supply and demand for government bonds, and 2. Market expectations about the outlook for inflation. The video begins by looking at how many bonds the government will have to sell over the next seven months to finance the massive budget deficit expected for this fiscal year ending September 30th. It then asks how such a large deficit will be financed and who the buyers will be. Here the importance of the Treasury General Account, the US Treasury Department’s bank account at the Fed, is explained. As of February 24th, the Treasury had $1.44 trillion on deposit there. That means the government has already borrowed enough to fund a large part of this year’s budget deficit. However, there is more to the story than that. If the Treasury runs down the funds in that account by spending that money, it will flood the financial markets with liquidity. Given that the Fed intends to inject AT LEAST another $840 billion into the financial markets over the next seven months, as well, the problem may become excessive – rather than inadequate – demand for government bonds. In that case, in terms of supply and demand, government bond yields would be more likely to fall than to rise during the months ahead. But what about market expectations concerning the outlook for inflation? This is the more immediate problem. If investors fear inflation is going to rise, they may be reluctant to buy government bonds. This, in fact, was the problem that caused the rout last week. If investors become spooked about inflation, a buyers’ strike could continue pushing yields higher and set off widespread panic across the markets. Expect to see the Fed respond to this threat early this week. If government bond yields seem inclined to continue moving up, the Fed is likely to take action over the coming days to ensure that they don’t. The Fed could announce a large increase in the size of its asset purchase program or even suggest that it may soon adopt Yield Curve Control. Either of those moves would send yields tumbling. There is one other possible scenario, however. What if the Fed would like to see a healthy correction in asset prices to put an end to the wild speculation that has characterized the markets for much of this year? What then? And how likely is that? Macro Watch subscribers can login and watch this video now for all the details.”>A rout in the bond market last week sent government bond yields sharply higher and the price of a broad range of speculative assets painfully lower. For instance, Tesla lost nearly 12%. Even the price of Gold fell as low as $1,715 an ounce on Friday. If bond yields continue shooting up this week, the stock market and many other asset classes could very well suffer severe losses. So, what is the probability that yields will continue to rise? To answer that question, this week Macro Watch discusses the two most important factors that cause government bond yields to move: 1. The supply and demand for government bonds, and 2. Market expectations about the outlook for inflation. The video begins by looking at how many bonds the government will have to sell over the next seven months to finance the massive budget deficit expected for this fiscal year ending September 30th. It then asks how such a large deficit will be financed and who the buyers will be. Here the importance of the Treasury General Account, the US Treasury Department’s bank account at the Fed, is explained. As of February 24th, the Treasury had $1.44 trillion on deposit there. That means the government has already borrowed enough to fund a large part of this year’s budget deficit. However, there is more to the story than that. If the Treasury runs down the funds in that account by spending that money, it will flood the financial markets with liquidity. Given that the Fed intends to inject AT LEAST another $840 billion into the financial markets over the next seven months, as well, the problem may become excessive – rather than inadequate – demand for government bonds. In that case, in terms of supply and demand, government bond yields would be more likely to fall than to rise during the months ahead. But what about market expectations concerning the outlook for inflation? This is the more immediate problem. If investors fear inflation is going to rise, they may be reluctant to buy government bonds. This, in fact, was the problem that caused the rout last week. If investors become spooked about inflation, a buyers’ strike could continue pushing yields higher and set off widespread panic across the markets. Expect to see the Fed respond to this threat early this week. If government bond yields seem inclined to continue moving up, the Fed is likely to take action over the coming days to ensure that they don’t. The Fed could announce a large increase in the size of its asset purchase program or even suggest that it may soon adopt Yield Curve Control. Either of those moves would send yields tumbling. There is one other possible scenario, however. What if the Fed would like to see a healthy correction in asset prices to put an end to the wild speculation that has characterized the markets for much of this year? What then? And how likely is that? Macro Watch subscribers can login and watch this video now for all the details.
$TNX is the 10 year US treasury yield.
$TNX Daily
I don’t have a chart for the 2 or 3 year yield so am using the ETF SHY as a proxy.
SHY has been steady while $TNX has been rising, so the yield curve chart looks much like a chart of the $TNX.
(BTW, notice how $GOLD has been inversely tracking $TNX)
YIELD CURVE chart – Weekly (Not a true YC chart, but the best I could do.)
Notice today’s gap up in interest rates and in the yield curve. Consider that $SPX as a percent of GDP is at all time highs. Margins as a percent of GDP are also at all time highs. So the most over valued market in history is also the most levered market in history. Retail investors are “all in.”
The question is, at what point is the stock market going to throw a hissy fit about rising interest rates? A break through the S/R line at 0.18 on the yield curve chart would be a good guess. If a serious correction happens investors will sell anything and everything, including Gold, to raise currency to meet their margin calls. I don’t say a crash is definitely going to happen, but it is possible, maybe probable. Be careful out there.
87 Days to the election! Gold Bullion up nicely today, gold/silver stocks “holding” back. More tag applied below, around 70 links for you to enjoy. Some convention somewhere is in progress, I guess later this evening we’ll know more. Will the democrats be able to “ride” this one out through the election. Right now nation wide they(MSM) are saying Biden +11. We got work to do 🙂
Jack Cashill Bombshell: Barack Obama: ‘I Make Love to Men Daily’
In a previous post we noted that TLT (20 year treasury bond) and $GOLD moved for the most part coincidentally. Today we notice GOLD is trading back inside its consolidation pattern, and TLT is trading back above the neckline of a SHS pattern. It seems $GOLD and TLT are twins, at least for the time being. We don’t know yet if we have just a hard back test and a subsequent failure to hold, or if TLT will stick above the neckline.
TLT – Daily
Do TLT and $GOLD always more or less in SYNC? On the monthly chart we look back to mid 2002 when TLT was born. The yellow highlighting shows the years TLT and $GOLD traded in sync, the bull years for GOLD. We see a period of about 5 years (blue highlight) where the pair are not in sync during what we might call non bull years for GOLD. So the correlation doesn’t always hold.
Notice the TLT break above the top rail in March 2020, and subsequent pull back to the trend line. That action looks potentially bearish (at least to me)
Also TLT is massively overbought on the MACD oscillator, much more so than during the 2012 $GOLD peak. Interest rates are already zero bound. I suspect it could take negative interest rates to send TLT higher.
TLT – Monthly
Hindsight… well up spikes in the real rates curve have usually helped jump start nice rallies for gold and silver. The blue lines are the real yields for the 5/7/10/20 years treasuries.
https://www.quandl.com/data/USTREASURY/REALYIELD-Treasury-Real-Yield-Curve-Rates
Now look at the Yearly Chart… PERFECT ALIGNMENT!
I’ve posted some of my friend Carl’s commentary for a while. (Made his millions in penny stocks)
I get about 10 of these a day! (He does a LOT of reading!)
But I thought this recap was a pretty good one and you can read through all of it or not:
One of my favorite themes for decades had been demographics. The birth rate in the U.S. continues to decline. In the short run, it has a minimal impact but with each passing year the impact is more and more. Economies don’t grow when the population isn’t increasing and aging. Just look at the economies of Japan, Russia and many smaller nations with flatlining or declining populations. Women, and men in some cases, maybe sensing that bring children into this world as the stresses of life expand is just not a good idea. An expression of love may not be having children.
Also, the Federal Reserve and the Treasury Department are now implementing what will eventually be known as America’s brand of Socialism as the Fed more actively purchases corporate debt. The Federal Debt is apparently buying mortgage debt and corporate debt to help with liquidity in the bond markets.
Now China is going to ratchet up control of Hong Kong. This will drive another wedge into any possibility of future agreements with the U.S. and possibly other nations on any issue. China and Russia are being forced to expand their alliance. Trump has destroyed our military alliances with just about all historic allies. If Trump maintains control of the government the U.S. will have an impossible time attempting to call upon old military and economic alliances in the face of a growing threat of world war.
Very bad times could be in the future of the planet as people target each other as they blame each other for the decimation of the world’s economy. It now appears that the damage done to all world relationships by a combination of trade wars, the destruction of military alliances and the impact of CV 19 will be impossible to reverse. These events are very similar to what happened leading up to WW 1 and WW 2. Similar events are now happening in hyper speed. There will be no where to hide if war unfolds. Many are now suggesting that China and the U.S. are resuming the Cold War. It could easily become hot. Carl
Birth rates in the US decline to lowest level in 35 years
US Birth Rate Falls To 35-Year Low, Shifting Attitudes Toward Motherhood Could Be Cause
South America Won the U.S.-China Trade War
China does not seem to understand independence of Canada’s judiciary: Trudeau
U.S. prepared to spend Russia, China ‘into oblivion’ to win nuclear arms race: U.S. envoy
U.S. plans to sell $180 million in weapons to Taiwan, angering China
Trump plans to exit arms control treaty with Russia
Fed’s balance sheet grows to $7.04T
Whoops, I bet they change their minds in October: Kudlow says no need for more unemployment aid even as election looms
Housing Agency Sees Prices Falling Up To 18%, May Curb Underwriting
Florida’s Mount Sinai Medical Center cuts nearly 1,000 jobs Full story
Victoria’s Secret Parent Could Close Even More Than 250 Stores
Fed’s Clarida sees yield curve control as ‘natural complement’ to its tools
Cleveland-Cliffs hikes prices for carbon steel products
Fed Has Purchased $1.8 Billion of Corporate-Bond ETFs So Far
Brazil to boost aid for informal workers, formal jobless insurance claims surge 76.2%
Russian economy to contract, rouble to stay weak amid pandemic: economy ministry
German business gaining traction in China again: DIHK
China announced dramatic plans to rein in dissent by writing a new national security law into Hong Kong’s charter, which could threaten its independence as a financial center. Chinese lawmakers were preparing to soon pass measures that would curb secession, sedition, foreign interference, and terrorism in the former British colony, according to the South China Morning Post.
March 2019 Gold: $1300
Currently Gold:$1600. Yield curve went from Flatening to inversion to steepening now. Spread between 10 yr Treasury rate minus 3 month T bill rate.
“3/27/2019-This input shifting from bearish to bullish requires a reversal in the yield curve from flattening (long-term rates falling relative to short-term rates) to steepening (long-term rates rising relative to short-term rates). If the reversal is driven primarily by falling short-term interest rates it indicates a boom-to-bust transition, such as occurred in 2000 and 2007, whereas if the reversal is driven primarily by rising long-term interest rates it points to increasing inflation expectations. The US$ gold price could rise to the $1400s during the second quarter of this year as part of an intermediate-term rally, but to get a gold bull market there probably will have to be a sustained trend reversal in the yield curve.
https://tsi-blog.com/2019/03/the-fundamental-backdrop-remains-slightly-bullish-for-gold/”
OK since we are all confessing how easy it is to be wrong and how hard it can be to realize and then admit it
Here is a Topic I would like to introduce….Modern Monetary Theory .
To begin….I like this quote from NorthStar …just posted in a comment to Alfa8
“Keeping an open mind and being willing to change your views are hallmarks of a truly great human being”
I agree and would like to begin this discussion by saying I am reflecting on the following Thesis and theories which have been central tenants of most of us who gather here at the tent.
My early thinking is that …I can certainly see that dismissing this new Theory out of hand may be very wrong headed. Not only do I think it may have more validity than we could ever have imagined but I HOPE with all my might that it is valid !
Here goes. Here I am quoting from my own reply in an email exchange with a former poster here who keeps in touch who sparked this debate….by sending me some info on MMT.
…………..
“OK…we need to think about all this with an open mind and a clean slate.
You and I have been long term Gold Bugs and have been “indoctrinated” to believe in the Austrian School of Economics theory…the only “Honest and noble theory “…
That eventually printing money exponentially will cause the same kind of inflation Weimer Germany Experienced and we will all be transported back to the stone age.
And Gold will rise to the moon and all that . ALL fiat returns to its intrinsic value…zero ! And all that jazz.
We have been expecting this for 20 or 30 years or more ( 50….Nixon closed the Gold Window.)
BUT in spite of a seemingly infinite creation of fiat from thin air…this has not happened YET
Now we have the conditions which will really decide who is right Austrian Theory OR Keynesian Theory… and its latest iteration MMT.
What if this actually works….How can we say for certain that it will not….I for one am not smart enough to just dismiss this out of hand.
Times have changed….one thing for certain….EVERYBODY IN THE WORLD…WANTS THIS TO WORK…Everybody is ready willing and able to play along with this and MAKE it Work…and that is a huge reason to believe it can and maybe will .
NOBODY WANTS THE MAD MAX SCENARIO..except for a few grumpy old goldbugs….
Personally I am ready to let go of all my preconceived ideas and give this a chance…and actually cheer the attempt on.
The alternative is too dark to even consider IMHO…what do you think ?
Thank you for sparking this discussion …I intend to take it to the tent
…..
MMT : https://www.investopedia.com/modern-monetary-theory-mmt-4588060
…..
Warren Mossler : https://en.wikipedia.org/wiki/Warren_Mosler
…………
Armstrong Historical Piece on MMT :https://www.armstrongeconomics.com/world-news/central-banks/modern-monetary-theory-v-central-bankers/
………….
Now I am going to present another Email Thread I have had today with a group of members and former members who have for some reason included me in their discussion of the Notorious “Q”Anon….that of course is a pet peve of mine as I believe this is the most ridiculous conspiracy theory out there…(on this I have no open mind.).but I did a lot of research to come to this conclusion.
Anyhow one of the members of this email group sent us an email entitled ” Meet the New Fed Head… Donald Trump”
and showed a piece which actually I read and had to agree with !
Trump IS now in Complete Control of the FED !!
Of course I admitted that it looks like Q was right about this .. then I had to point out the following.
……
“Thank you for enlightening me. This is incredible ..What a turn of events !!!
Trump IS in control of the FED through the US Treasury.
But do you realize he is endorsing and using FULL BLOWN MMT ! Wow !
What is MMT ? Please read this link to refresh your memory
https://www.investopedia.com/modern-monetary-theory-mmt-4588060
I would like to emphasize this paragraph and then please offer me your honest response to this
“Political leaders like Alexandria Ocasio-Cortez and Bernie Sanders have espoused MMT, and economist Stephanie Kelton, who first came across Mosler’s ideas on the listserv and is now arguably the face of the theory, serves as a senior economic adviser to Sanders.”
So what we have here is a COUP D’ETAT by the Far Left …AOC has now defacto taken over ….Democracy is DEAD
Long Live Socialism.
This is exactly what the far Leftists like Sanders and especially AOC have been demanding….
Free money for EVERYONE….next will be universal health care…they will demand it and Trump with his new found MMT magic wand will need to provide it after this Virus Epidemic decimates a good portion of Americans savings.
Who’s the Boss Now ?
Maybe Trump is their puppet…
How do you guys feel now that Trump has joined the far Left and is employing their remedies for the USA.
How do you feel now that he has betrayed his promise to pay down the debt .
How do you feel now that he is bailing out Wall Street and The banks and all the Billionaires and even small businesses and individuals…..
I though he was supposed to advocate for honest money..a new gold standard …and abolish the FED
He didn’t abolish it he just took it over and is using it to bail out the country with MMT …the tool of choice of AOC.
How does this feel….is he still your savior ?
Personally I find the irony Delicious
The Right and Left have finally aligned
The Rich and the Poor get bailed out…all at the same time…a Bipartisan effort…
The Virus has done the impossible !
Ha …you can’t make this stuff up
….
One last thing before we turn this over to the Round table
The estute member who sparked this debate has added something of great importance to this discussion.
The Eurozone :
This MMT stuff seems to be hinging all upon the Euro states right now as the independent countries within are NOT allowed to issue debt as such . ECB trying Eurobonds but central banks so far back and more negative rates will collapse them sooner than later. Germany kinda gave up by supplying money to keep banks from failing there which the Germans do not want to give money to Italy… but but may have to. If all the member states hunker down ,esp. with the virus lockdown, this may make them decide to leave the crutches of Brussels and print MMT instead of austerity from Brussels/ECB. Euro would crumble, usd spike and gold I don’t know . Money would flee to the DOW and hard assets like commodities so gold should catch a move as the central banks would be free from Brussels. All eyes on Europe. Germany proposing 1 year lockdown, Peeps gonna riot and chaos soon as they have lost all confidence in gov’t, yellowvests, china…..still festering so hard to imagine Europe/Euro staying together , not to mention Turkey released 2 million more migrants unto somewhere, we are all racists deep down so every country for themselves in my opinion. High us $ kill foreign priced debt repayments into one big ugly mess and then they rehash the currency basket. Trump even mentioned to ‘re-finance’ the debt a couple town hall meetings ago, maybe it would wash out then??? Oil stocks look as sick as gold ones now, big cleanout. Cheap gas but stay home eh! Miners even shut down mines so shortage/demand be only reason for a rise. I found some old notes from years back Armstrong wrote. Goes like this ‘ flight to dollar, interest rates to zero then move up sharply due to money supply”. Who’d a thunk? Ya I guess rates flip due to risk . He says 10-20% overnite no problem. Would I go borrow and spec build now ? Would the banks even give it to me, . Back to the Euro, central banks there don’t trust each other hence the FED 1 trillion day or else tits up. Lower usa rates hurt them more so eventually they default and gov’t pensions…. go poof. Yikes ,then strikes,protests…. hence the watch over there for MMT , split up and MMT forever I see as the next gig. Logically the Euro should crash, but …..! Thanks for the offer back in but shall pass as the squabbles get me nowhere with trading. Too many bowls as of late, price is moving average and old support/ resistance levels and nothing more needed. I gander Trump getting the army to build beds in arenas is him getting ready to say enough is enough and back to work as the peeps need freedom. Dow should flip up and dollar too. Dow level 15500 should be divergent low. Good conversing with you. MMT is unknown to most and the depths of it uncharted but if all gov’ts do it then it is all relevant to each and won’t matter book wise. Yup I’m ok and happy to see money to the peeps, last time Obama gave it to the banks and they squandered it so a good thing for mankind. Salud my friend !
Can Your Brokerage Account Or Favorite Bank Fail? – Mike Swanson (03/25/2020)
I got an important question from someone that deserves an answer in these wild times:
“So Mike
Just how safe do you think our cash is in our investment accounts??? If Corporate America defaults on their bonds and bank loans, just where is the cash going to come from to cover these failed commitments??? I don’t care if they don’t pay me any interest, but negative interest rates or loss of par value is going to be a catastrophic realization for all investors brokerage accounts?“
This is something that has crossed my mine in the past few weeks, but I’m not worried about it now with the recent Federal Reserve actions this week which amount to printing unlimited money to prevent the default of corporate high grade corporate bonds, CD’s, and mortgage securities.
Yep this is what they said they would do on Monday – unlimited QE. Of course they had already announced that they were going to buy Treasury bonds the week before that as there just aren’t enough real people to step in buying them now when they have such low rates when the country now faces an accelerated budget deficit bust.
One thing to remember though is that FDIC insures bank deposits up to $250,000. So if you buy CD’s each one is insured up to that amount assuming each CD is from a different bank.
There is no reason to think FDIC insurance would not pay on a default if it were to happen.
But yes it is possible for a brokerage to fail.
It has happened a few times in the past thirty years with some small firms.
US brokerage firms also carry SPIC insurance – that insures up to $500,000 worth of securities in an account, which includes up to $250,000 in cash deposits with the broker.
Again there is no reason to think SPIC would not pay if the broker default.
The best way to mitigate from this risk if you have a large amount of money is to spread it out among multiple brokerage firms, CD’s, and banks.
The real risk though we face in my view is not the default of accounts, but that down the road inflation is going to explode to erode the value of money. The Federal Reserve has launched unlimited QE to backstop all of these firms and corporate America.
That’s fine for now.
But at some point in the future this Federal Reserve action will begin to generate huge inflation that will erode the value of money. Investing in things that will benefit from that is the way to not just solve this problem, but to ultimately benefit from it in my view.
Right now the recessionary/depressionary forces are so powerful that inflation is not happening at the moment. But when the financial markets bottom out for real and the virus situation begins to pass I expect inflation will begin. This will be the cost of the unlimited QE and sending checks to people and bailing out the corporations.
-Mike
Safe Havens Are Not Working Well Now – Mike Swanson (03/19/2020)
This Sunday was a historic day when the Federal Reserve took rates to zero, announced a new big QE program, lowered the reserve requirements to banks and the stock futures dove that night in response. It meant the markets are not what they have been for the past eleven years.
Yesterday – just like they did on Friday – gold stocks ETF’s GDX, GDXJ, and JNUG diverged away from their true underlying net asset value. JNUG is once again completely malfunctioning. Take a look at the stocks that make up GDX or the XAU and compare it to the GDX action yesterday and you’ll see the divergence. Weird things like this are happening in the markets, because there is no liquidity. I laid out the mechanics of these gold stock ETF malfunctions in the Sunday Power Investor update.
What that means is that there are very few real buyers and an overwhelming number of sellers in the markets. Some assets – such as some of the individual bonds in bond ETF’s are priced at values that are probably not even real as they cannot be sold at their listed theoretical prices as they have no bids. Mass liquidations are happening all over the stock market in what is not panic selling, but the destruction of swaths of capital across the financial system.
I thought this type of thing could happen one day, but I never thought it would happen this year. The biggest thing happening is that the bond market peaked out. That’s why the Federal Reserve has announced two or three massive QE programs in the past seven days and there will be more to come. Everyday now it seems like they do something new.
This is why the TLT is not going up now as a safe haven during these market declines. With all the coming bailout programs and expected loss of tax revenue the US government budget deficit is going to completely explode. What was a 20% stock market drop two weeks ago has now become a debt crisis. They play out with an attack of deflation (witness the big 20% drop in oil yesterday) and when they are over lead eventually to huge inflation.
Everything is falling now and nothing is going up as a safe have at this moment. Gold has fallen below $1500 an ounce. It has had stabs up and then drops on some of the days of big stock market weakness. We are in a mass liquidation in the markets. I didn’t think this type of thing would happen this year, but it is happening now.
Why?
One reason is that much of the market became simply a pure bubble and is now imploding. That’s the story of the debt market where the yield on BBB junk bonds got down to less than 3% just a few weeks ago and the yield on the ten year Treasury bond went to 0.666% – a price no human being would buy it at. So the Fed had to do a QE last week to become a buyer.
I am sure there are margin maniacs being liquidated in the markets, but now millions of responsible people are facing an economic downturn and can’t afford to lose any more money. So some are selling to raise necessary cash to finance debts or to simply have cash reserves to ride out the coming months. That’s just smart prudent business.
But the impact is making it so that at the moment safe havens are not working when everything is being sold. However, the bond market as we know it is broken. The good sign for precious metals is that gold is trading less volatile than the stock market and will go up more than the stock market does when this market decline is over. Gold is going to go completely crazy when things turn, because it is going to replace bonds as a safe haven for many.
The investment implications are simple – gold and precious metals are still the best investment for the next ten years and cash reserves are also a position for people so that they will be able to buy when this storm is over.
My guess is it will end in April.
That doesn’t mean the markets fall everyday, but until it ends these will continue to be the most treacherous markets we have ever seen. The speed of the drop so far has even exceeded what happened during the 1929 stock market crash. Check out this chart someone posted on Twitter:
Safe Havens Are Not Working Well Now – Mike Swanson (03/19/2020)
Post Bubble contraction effect on the financial market explained with lesson in History.
Bob Hoye is financial historian.
Indicators he follows have been shared here multiple times.
3 months Treasury bill rate
Credit spread
Yield curves
“Beyond these technical measures, warning events included that the Yield Curve inverted
in the summer whereby short rates trade higher than long rates. This is typical of the
culmination of any boom and the record back to 1857 is that every inversion has been
followed by a recession. Beyond this, the curve inverted again in January. The double
inversion occurred in 2007 as well as in the 1929 and 1873 Bubbles”..
“Credit spreads which is the difference between high-grade and low-grade bonds have
reversed to widening. Which also signals the end of the boom.
It is worth noting that while most think that Fed can keep a boom going by cleverly timed
cuts to the Fed rate, there is no example of success. Success would be a record of no
recessions. And the concept is ironical. Treasury Bill rates increase in a boom and record
the fastest declines during a financial crisis.”
“Another feature of the transition from boom to contraction includes the action in
industrial commodities. Up in the boom and down in the bust. Base metals set their
recent high on January 16th and have declined by 12 percent. Crude became overbought
in setting the high at $65.65 on January 8th and has crashed 50 percent to $32. Our
February 13th publication noted our targets of $37 and $26”
“These plunges are marking the transition to contraction and going the other way gold’s
price reverses to increasing in the post-bubble world. From the low of $1167 in 2018,
gold has rallied 46 percent to $1702. Also Treasury Bills decline. For the 3-month the
high yield was 2.49% a year ago in March. Now it is at 0.29%”
Credit market is the center of the Global financial market universe.
Watching/monitoring these credit indicators can lead to market positioning Long or Short.
Libor3 rates to 3 months Treasury bill rate : Libor3/ $IRX
Yield curves across all maturities specially L TNX/ IRX, TYX/FVX (5yr Treasury),…
Credit spread High yielding Junk bonds to Treasury bond : MUT/TLT, HYG/IEF or JNK/TLT.
Gold to silver ratio or Silver to gold ratio.
From time to time all of the above charts have been shared here for benefit of valuable members.
Below is a youtube post by George Gammon explaining exactly how REPO works and hos FED is watching the same indicators for healthy liquidity.
In the video he explains why Gold and silver goes down during initial credit contraction crash phase. First time learned new info. Great.
To help understand video latest credit charts are included below.
The entire spectrum of US treasuries and bonds/notes have negative real rates!
For Patrick:
Current situation in credit market is incredibly similar to what happen in 1999 to 2003 and 2008 Boom- bust cycle.
Yield curve across the spectrum of treasury maturities went through the cycle of Narrowing during boom and at the top yield curve inverted for some time and began to steepening from inversion.
The featured Yield curve chart is of 30 yrs Treasury to 3 months T bill rates.
One important feature of boom is that 3 months Treasury bill (IRX) rates rises with expansion of economic activities, At the height of 1999 IRX rates topped at 5%. (not a typo). During that period Yield curve began narrowing to inversion. Later it started turn to steepening along with the decline with IRX.
As the curve began steepening IRX continuelly declined. That ensue the begning of Bust cycle.
Narrowing of Yield curve: Difference in Yield of longer maturities T bond and shorter term treasury is declining.
Steepening of Yield curve: when the difference is growing more and larger.
At the top of Boom cycle the curve was inverted where 30 yr bond yield was lower than IRX. At the bottom of bust in 2003 the difference rose to 5.58 bps from – negative. Huge delta.
At the top of boom Nsdaq index topped at 6000.0 and bottom was 1500.
Market experienced Similar boom bust cycle in 2008. AND the current market cycle seems to be on the same path once again.
If you study the charts it is signaling the same outcome once again after another 11 years. Of course there other indicator as well which enhances the theory of upcoming bust: credit liquidity measured by difference in rates between IRX and Libor3 rates.
Warning!!! From Yield curve 30 yrs -3 month T bill Boom bust analogy
I know I’m probably still in the minority thinking the Dollar is toast. I’ve been saying it for a long time, with charts going back years. I’ve never known why it would happen, just that my charts suggested it’s much more likely than DXY 120 or more. In this context, the following is interesting…
The dollar nursed savage losses against the yen and euro on Friday as a plunge in U.S. yields to record lows wiped out the currency’s single greatest attraction for investors — higher interest rates.
Mounting fears over the fallout from the coronavirus has driven a truly tectonic shift in expectations for U.S. rates as markets wager the Federal Reserve will have to cut rates by 50 basis points for a second time this month.
The resulting collapse in Treasury yields — which fell another 10 basis points in Asia — has been the death of one of the most popular carry trades globally — borrowing at negative rates in the euro and yen to buy U.S. assets.
“Select USD pairs like EUR/USD are turning because of a dramatic and decisive shift in U.S. rate expectations and related spreads,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank.
“The USD has lost the single most important source of its over-valuation, a strong carry advantage,” he added, warning this could end a dollar uptrend that has lasted since mid-2018.
Edit: Chart added
Back in the twilight zone confirmed… next stop zero. Indeed… this is not Summer of 2019… it is much much more!
So last time we went here…. it was the 2009-11 melt-up!
Edit: not the real yeild curve… 20’s almost negative!
You Need To Know The Real Reason Gold Is Now Going Up
Mike Swanson
Last week gold smashed through $1600 an ounce and on Friday many of the big cap mining stocks made new 52-week highs. People are starting to take notice of this price action, but what just about no one is talking about is whyit is happening. I certainly saw no one explain things Friday night on CNBC after the market close and I doubt they will today either beyond blaming the coronavirus for everything.
But gold went up last year without the virus news. Much more is going on.
So you need to know the real reason go is going up.
It is simple.
Last week the yield curve inverted again. The yield on the 3-month Treasury bond is once again higher than the yield on the ten year-bond, which is yielding just about nothing. You can see this move on this chart.
The Fed Fund futures market is now pricing in a 90% chance of a rate cut before the end of this year. But with rates so low (ten year Treasuries now yield less than 1.55%) already there just aren’t going to be many more ratescuts available after the next stock market drop or recession beings.
So what is the Fed going to do?
On FridayFederal Reserve Governor Lael Brainard gave a speech in which she told us. She said that the Federal Reserve is likely to announce a cap on interest rates and keep them low by increasing its QE money printing operations in a big way to buy Treasury bondsitself.
They will essentially monetize the debt.
It was a huge thing for a Federal Reserve official to admit and some who heard her remarks realized they need to get ahead of that operation and buy gold and silver.
Imagine where gold and silver will be when the next round of rate cuts actually happens and these type of money printing operations become widely talked about?
This is why gold is just starting to go up just like when it began to move last year when it went through $1350 an ounce. $1600 is the new $1350 and now gold is eyeing $1710.
Why Gold Stocks Should Be Owned
“However shortly after the funding began, the Bank for International Settlements (BIS),
the central banks’ bank in Switzerland, issued a paper stating that the problem
stemmed from borrowing by three giant hedge funds, which were engaging in a
leveraged strategy. The leveraged strategy involved buying Treasury bonds, and
selling derivatives against the bonds. To continue to leverage these positions they had
to borrow against their bonds, creating huge demands for loans that the banks were
either unwilling or unable to continue to provide. In effect there were three major hedge
funds with a problem bigger than the Long Term Capital hedge fund problem in the fall
of 1998. ”
“The FRB is also working on revised language that will justify allowing inflation to exceed
their 2% target.”
Below is chart of liquidity in the market: Ratio of LIBOR3 to 3month T bill rates. Clearly chart shows how ratio began its downward move since the operation began in last fall.
Real rates are MELTING! 10 year going negative… next on deck the 20 year!
https://www.quandl.com/data/USTREASURY-US-Treasury?keyword=real
REAL rates for US 10 year treasuries have dipped below zero!
UBER low rates probabilities gaining steam by end of year… this is being priced in
Reminder how gold reacts to easing …
Interesting, this guy has been long stocks for a while. Quick reversion, now defensive.
Yields may be the story of the year going forward, but remember, the FED officials have stated they see interest rates remaining unchanged this year, at least from some of the FED voters that have recently been interviewed. Actually, the FED dot plots project rising rates in the future! And the American taxpayer supposedly pays these guys $100,000’s/year, with full pensions. Big pensions. Amazing how out of touch with reality they are. Let free markets work and end the CB’s.
However, counter to his charts, I would argue on longer time frames the $Gold/TLT ratio is about to break up, in favor of gold.
If the US treasuries don’t yield… and the corporate high grade yields are topping off… guess gold wins by default?
Extract from : https://www.quandl.com/data/USTREASURY/HQMYC-High-Quality-Market-Corporate-Bond-Yield-Curve-Spot-Rates
“…
The HQM (High Quality Market) yield curve represents the high quality corporate bond market, i.e. bonds rated AAA, AA, or A. The HQM methodology projects yields beyond 30 years maturity out to 100 years maturity to get discount rates for long-dated pension liabilities. Column headers are maturities in years.
…”
Just found out how to get LOTs of new data on Quandl via tradginview.com!!! Rabbit hole time!
Extract from https://www.quandl.com/data/USTREASURY/REALYIELD-Treasury-Real-Yield-Curve-Rates
I see this as another piece of the puzzle to better understand what gold is “sniffing out”… this picture is simple and clear to me… so I’ll add it to the evidence that we are indeed in the 4th bull era for gold!
