Guest Post by Michael Ashton
 I have to claim credit as being one of the first and maybe loudest when it came to talking about yield spreads before the recent drop in the yield curve. But Mike Ashton has professional experience dealing in the credit/debt markets as I recall. His post is very interesting to a geek like me, and should be to all market players because the interplay between Treasury rates is key; even more so than any individual markets we may be micro managing. So many things spring from interest rate relationships.
I saw a story on MarketWatch on Monday which declared that the “Treasurys most sensitive to rising interest rates” had been ditched by investors while those investors instead were “gobbling up longer-term securities,” causing the curve to reach its flattest level since 2009. I thought that was interesting, since an inverted yield curve is a valuable indicator of potential recession.
I have not noticed too many gold sector experts talking about certain indicators that are no longer favorable. Funny how that goes. It’s short term stuff though, so maybe the idea is to go along and get along. Don’t ruffle feathers or upset the apple cart. NFTRH 281 ruffles a few feathers but beyond the near term has significantly higher targets for later in 2014.
There is also some crackhead stuff in here as 6 Semiconductor charts that I find constructive are presented (with targets) in the event that the SOX holds its breakout and the market goes into blow off mode.
In all 34 pages of quality reporting. NFTRH 281, out now.
I get it. I continue to look silly posting bearish things as the market levitates. Well, here is another silly bearish nugget for good measure. Sure, the sky pilots in junk bonds are chasing yields to the heavens. Why, just look at HYG go!
But its ratio to long-term Treasury bonds is not so stellar. It’s just another small divergence to the bull festivities, but there it is none the less.
I happen to think nominal T bonds have a good shot at rising soon. If that should happen, for risk to remain ‘ON’ junk bonds had better rise even faster.
The economy and the stock market depend on inflation. Get serious giddy stock bulls, they inflate, you make money. They fail to inflate and the tide turns deflationary, your gains go poof, money heaven. I’ll dig out some of those policy-profits-S&P 500 corollary charts again soon enough.
The relationship between TIPS (inflation protected) and TLT (regular long-term T bonds) is one indicator of inflation expectations and while it seems to have spent the last 2.5 years in bottoming mode (allowing Goldilocks to pig out on porridge) it is still going nowhere.
TIP-TLT ratio weekly, from NFTRH 277
Along with the indicators and parameters shown in the last few posts, the TLT-SPY ratio can be informative. We had a good ‘risk OFF’ thing going as TLT crept out of the Falling Wedge vs. SPY. Then we had an impulsive scare fest in the market as the VIX exploded, people got too bearish and TLT-SPY took a corrective turn down right at the 200 day moving averages.
So now, a parameter to the potential resumption of the bear case would be TLT-SPY holding the MA 50’s. Markets are making sense again, aren’t they? And we have not even talked about the daddy of all indicators, the gold-silver ratio. I love this market.
Folks, alas I am all written out. I can write no more today other than that this here market report, #277 is a damn fine piece of work. Key word ‘work’.
This one slims down to 31 pages of quality financial market analysis. These reports, which should be between 15-25 pages normally, are what they need to be for me to get enough data points analyzed given the current situation where 2014’s financial markets are grinding toward our expected changes.
There is no ‘set it and forget it’ right now. I am in full geek mode. Later will come the relatively fun part, like making money on new trends.
NFTRH 276 out now…
Because it is Fed day (don’t you just love Fed day?) and because I have got Prechter in my head, we’ll stay on the topic of the long bond. The FOMC ostensibly has some kind of decision to make about Treasury bond manipulation today.
Dial back with me if you will to a happier time for inflationists. It was the spring of 2011 and the ‘right’ kind of inflatables were blasting off all over the place, led by silver. The inflation bulls were geniuses then. Why, even the Bond King declared his bearishness against long term T bonds and put his high profile bond funds short against it. Ah, no dear sir, incorrect. The ‘Continuum’ was at a turning point from up to down.
What was actually in store was a deflationary environment during which the usual inflatables got hammered along with much of the world. Here in the good old US of A the effect manifested as Goldilocks, with genuine deflation forestalled at least.
Today, in keeping with the theme that has seen legendary market luminaries and long time newsletter writers alike close up shop due to confusing market signals that just don’t seem to make sense, we have the Deflation King (Prechter) declaring he is bearish on T bonds, expecting as Gross had 3 years ago, for the yield to break out… this time (in response to inflation).
Sometimes I think it is an advantage being a relative simpleton instead of a market luminary. I have no clue if the yield is going to break out this time (nor if the ultimate condition for the next year or two will prove inflationary or deflationary for that matter) but I do know that I am not smart enough to make predictions like that. I am, in the tradition of the earliest Hominids, a simple tool user.
The tool above says that nothing has happened yet that threatens a condition in T bonds that has been in place for decades.
A 35 page monster (lots of pertinent charts and graphics, so it’s not as difficult a read as it may sound) was just sent out to NFTRH Premium subscribers. It’s a good one too. Filled with probabilities in alignment with our bigger picture plans for the financial markets, and yet some short-term moderation of views as applicable.
Friday was a scary day for the US stock market. Said market is not broken, but the indicators beneath it are rapidly coming apart and the bull market’s technical parameters are coming into play. Then there is gold and other ‘risk off’ things. So much to discuss and 35 pages really was not enough. Good thing we have nothing but time to lay it all out going forward in 2014.
NFTRH 275, a solid piece of work… out now.
In September I wrote a post where gold made the same wise guy statement, because there is a valid argument that sees the onset of a ‘tapering’ regime as positive for gold.
Today it is the very asset class in the cross hairs of tapering, long term Treasury bonds that is saying ‘Taper this you mofos!’ Amidst all the hysteria about reduced bond purchases by the Fed the TLT fund is holding an important moving average and threatening to turn up.
It is so cool to think about how utterly enthralled the herd is with policy makers these days (doing a 180° to 2011 or 2009). As if policy makers were not compelled to start babbling about tapering because long term yields had already bottomed and turned up. They then rose persistently right to the targets that NFTRH had all along. Voila, tapering initiated at the last FOMC.
Yields rise = taper jawbones in the media; not taper jawbones in the media = yields rising.
Today if yields do the contrary thing and decline (into an eventual counter cycle) maybe Huey, Dooey and Louie will start jawboning a tapering of the ‘taper’ talk. Only this time, I would not necessarily expect a resumption of full QE to hurt gold; not if it comes in response to a decelerating economy. That’s a big detail sitting right in the middle of the analytical equation.
Okay, so the post riffed a little and got off its original message, which would be that T bonds are threatening to put a majority off sides due to their own herd following behavior patterns. There, now I’m done.