Experts as Contrary Indicators (Bonds Edition)


I want to begin this post by again noting publicly that feel like I clowned myself yesterday in my own trading and in my lack of attention to the market at a critical point (couldn’t really be helped, but it’s the results that matter). Despite a market doing generally as expected, I was not really prepared. My macro views often prove right on while my own execution can shall we say, vary. It’s why I tell NFTRH subscribers or anyone considering the service it is best to follow the analysis, not what some faulty trader is doing at any given time.

The reason for the paragraph above is balance for the paragraphs below, in which we drive home once again the folly of listening to experts (at least the experts the media shove in your face at ill-timed junctures). I had a subscriber leave NFTRH in mid-2016 (he’s back and we’ve had a friendly review of that situation) in part because I was doggedly bearish gold and bullish the Semiconductors, which was exactly opposite to the stance of a technology expert, whose service he also subscribed to. It made me sad (for both of us) to have stuck to my convictions, but lost a subscriber while turning out to be right in my view.

So that was a personal anecdote in which an expert was involved. More generalized exceptions taken with experts have been noted here on many occasions, but none have been more glaring than with the “Bond King” Bill Gross over the years. I first became aware of Gross the media promoted contrary indicator as inflation alarm bells were going off in Q1 2011. That was when silver was blowing off, commodities were topping out and inflationary hysteria was maxed. The media put forth the ‘Bill Gross is short the long bond story’ for we non-expert peons to get emotional over.

I simply held up the Continuum and its (red dashed) monthly EMA 100 “limiter” and said err, I don’t think so. Bill Gross has been a long time resident of this chart. Ray Dalio and Paul Tudor Jones recently moved in.

tyx Continue reading Experts as Contrary Indicators (Bonds Edition)

TreasFest! $30 Billion Treasury 2Y Note Auction Draws Yield Of 2.31%, Highest Since 2008

By Anthony B. Sanders

Treasury’s $30 billion two-year U.S. note sale drew a yield of 2.31 percent, the highest since 2008, with a bid-to-cover ratio of 2.91, in line with the average over the past 10 auctions. Indirect bidders, a class of investors that includes foreign central banks and mutual funds, bought 44.5 percent, down from the 49.7 percent average. Direct bidders purchased 14.1 percent.


That left primary dealers, which are obligated to bid at auctions, with 41.3 percent, the largest share since December.

Continue reading TreasFest! $30 Billion Treasury 2Y Note Auction Draws Yield Of 2.31%, Highest Since 2008

How Do Changes in Real Interest Rates Affect Gold?

By Charlie Bilello

We often hear that Gold prices are driven by real interest rates. Rising real interest rates are said to be bad for Gold because it increases the opportunity cost of holding the yellow metal. This makes sense intuitively as Gold pays no interest or dividend, and will therefore be less attractive as compared to risk-free bonds when real interest rates are higher.

But Gold is a complex animal, influenced by a multitude of factors, only one of which is real interest rates. How much do changes in real interest rates alone impact the the price of Gold? And is it only the change in real interest rates that’s important or the absolute level as well? Let’s take a look…

Since 1975 (when Gold futures began trading), there has been an inverse relationship between Gold and real interest rates. Gold has generated positive returns during periods of falling real interest rates and negative returns during periods of rising real interest rates.  This is true whether we look at monthly changes (+13.9%/-3.9% during falling/rising periods) in real interest rates or year-over-year changes (+11.0%/-0.3% during falling/rising periods).

Continue reading How Do Changes in Real Interest Rates Affect Gold?

Tariffs May Not Slow Profit Momentum

By Chris Ciovacco


U.S. Treasury Secretary Steven Mnuchin indicated Sunday the U.S. is hopeful to strike a deal with China, which means the tariffs would never go into effect.  However, if a deal cannot be reached, how significant are the tariffs relative to the big picture?  From CNBC:

Jeremy Zirin, head of investment strategy at UBS Wealth Management Research, told CNBC that President Trump’s announcement Thursday on tariffs on up to $60 billion in Chinese imports didn’t seem that bad.

“The economic impact of [the tariffs] is less than one-tenth of 1 percent,” Zirin told “Squawk Box.”

“It’s actually pretty bullish what we heard yesterday,” he added. “If you look at the steel and aluminum tariffs as a template, things got watered down and then scaled back. So, if you look at the whole economic backdrop, still a very good profit momentum.”


From a bigger picture perspective, the economy does not appear to be on the brink of a recession and the 20-year breakout in the Value Line Geometric Index is still in play.

Continue reading Tariffs May Not Slow Profit Momentum

Sentiment Snapshot: Technically Bearish

By Callum Thomas

As a reminder, the weekly survey on Twitter asks respondents their views/positioning on equities and bonds based on whether their view is primarily driven by the “fundamentals” vs “technicals”.  It’s important to keep that fact in mind as we go through the latest results.

Indeed, the latest results showed “technicals” net-sentiment dropping to the lowest point on record, and yet “fundamentals” sentiment was little changed on the week.  My first impression is that this is entirely consistent with the idea that this is a sentiment/technicals driven correction against a still decent earnings/macro backdrop.

Of course the glass-half-empty folk will say that the fundamentals sentiment will be the next shoe to drop as that crowd capitulates.  It brings the equity vs bond fundamental sentiment chart into focus, and the course of that chart could well dictate how this correction ends up playing out…

Continue reading Sentiment Snapshot: Technically Bearish

Higher Volatility Does Not Have to Equal Lower Stocks

By Kevin Muir

Too many market participants believe rising stock market volatility can only occur in down markets. It might be true that rising volatility is considerably more likely to occur in times of market stress, but it’s nowhere near as certain as most pundits believe.

While there can be no denying that stock markets often take the escalator up and the elevator down, this generalization is far from a law of nature. Volatility is the measure of the variability of price returns. There is nothing written in the finance books saying that stocks cannot go up just as quickly as they go down.

Don’t believe me?

Continue reading Higher Volatility Does Not Have to Equal Lower Stocks

Bouncing Toward the Gap and MA

By Tim Knight

As you might guess, today (Monday) was pretty much the opposite of last Friday for me. Friday was awesome. Today sucked. But as a swing trader, I’m not going to cover all my positions willy-nilly. As I so often say, the individual stops need to take care of themselves. As such, I’ve retreated from 71 positions down to 61. Of those, 51 remain profitable, and the other 10 have small losses. Average of the winners is 3.27%, and the average of the losers is negative 0.26%.

This bounce could have more life to it (and, for me, more pain). Looking at the charts, it seems to be the key is the gap between last Wednesday and Thursday. Take a look below, and you’ll see an interesting correlation between the 100 day moving average and the Wed/Thurs price gap. It seems to me, that makes a sensible bounce target. (Side note: I took this snapshots about an hour before the close, so the price moves were even higher).


Continue reading Bouncing Toward the Gap and MA

Buying Gold Wouldn’t Be The Worst Idea Right Now, Goldman Reckons

By Heisenberg

Regular readers know we’re not big fans of gold outside of the hedging benefits it can provide in a portfolio.

The fact is, it’s just a piece of metal. It has no intrinsic value and ironically, it will be even more inherently worthless in an armageddon scenario than it is now.

As we’re fond of putting it, the only thing gold will be good for if we all find ourselves living out Cormac McCarthy’s The Road is as a weapon to bludgeon the cannibals with when you run out of bullets. You can’t burn gold for fuel and you can’t eat gold, so I’m not sure why anyone thinks they need a personal safe full of it to guard against the nuclear apocalypse.

With that out of the way, obviously it can serve a purpose in the portfolio context and given the very real possibility that there’s an acute, indiscriminate risk-off episode in everyone’s future that might not be tied to the Fed (i.e. a risk-off episode that doesn’t result from some hawkish lean somewhere and thus isn’t accompanied by rising real rates), it’s probably worth considering whether allocating more to carefully polished yellow doorstops would be a prudent move.

We’re not going to spend a ton of time on this because frankly we don’t find it very interesting (if you want to own some pretty paperweights, well then by all means stock up, we don’t give a shit), but it’s worth noting that Goldman is out with something new. We’ll just hit the high points. They start by noting the decoupling with real rates:


Continue reading Buying Gold Wouldn’t Be The Worst Idea Right Now, Goldman Reckons

The Bear Market In Bonds Is Just Getting Started

By Anthony B. Sanders

$300 Billion Of T-bill and T-notes To Be Auctioned This Week

Which kind of bear is best?  The one where the LIBOR-OIS spread doesn’t keep rising!

(Bloomberg) — The recent drop in yields will be tested by a surge in borrowing by the U.S. government and a ballooning budget deficit.


The bond bears had a good run. The benchmark Bloomberg Barclays U.S. Treasury index declined as much 3.67 percent between early September and late September. Lately, though, they seem to have lost some of their resolve as yields on intermediate-term Treasuries fell back from their highest levels since 2010. If anything, they should be more bearish.

Continue reading The Bear Market In Bonds Is Just Getting Started

Global Equity Breadth Check: New Lows

By Callum Thomas

Just a quick global equity breadth check here.  As a reminder, these breadth models are looking at breadth across countries i.e. the main benchmark stock index for each of the countries we monitor (70 countries in total). Looking at breadth in this fashion for global equities can help flag early warning signs if certain pockets of the globe are coming under pressure, or indeed trigger timing signals when global markets succumb to panic selling and broad capitulation.

As you might expect, and following on from the article last week which looked specifically at 50-day moving average breadth for global equities, most measures of breadth have broken down markedly. At this point it’s tempting to call global equities oversold, and that would be my bias, that said it’s a risky juncture.

The main points from the charts on global equity breadth are:

-200-day moving average breadth is breaking down.

-52-week New Highs minus New Lows shows significant downward momentum, yet is also in the oversold zone.

-The number of countries trading at new 52-week lows reached 9 (out of 70).

1. 200-day Moving Average Breadth: This time looking at 200-day moving average breadth across countries, you can see a notable breakdown here.  In previous episodes there has basically been two types of breakdown in this indicator: i. Oversold markets; and ii. Trend changes.  We can only truly know what it is after the fact, but we’re truly seeing a significant reset here and that could create an interesting setup.

Continue reading Global Equity Breadth Check: New Lows

Slaves to Government Debt Paper

By Keith Weiner

Picture, if you will, a group of slaves owned by a cruel man. Most of them are content, but one says to the others, “I will defy the Master.” While his statement would superficially appear to yearn towards freedom, it does not. It betrays that this slave, just like the others, thinks of the man who beats them as their “Master” (note the capital M). This slave does not seek freedom, but merely a small gesture of disloyalty. Of course, he will not get his liberty (but maybe a beating).

Today we do not have slavery, but we are shackled nevertheless. Savers are forced to use the government’s debt paper as if it were money. Most are content, but one says “gold will go up.” He does not expect a beating (but maybe a price suppression).

The slave cannot escape from his bondage, until he stops thinking of the brute as “Master” with a capital M. Freedom does not come from a little show of resentment. So long as malcontent slaves are content to limit themselves to petty disobedience, the Master is content that his rule is absolute. Freedom first takes an act of thinking. One must see the brute for what he is.

Today’s investor cannot escape from the bondage of the Federal Reserve, until he stops thinking of the dollar as “Money” with a capital M. So long as malcontent investors are content to limit themselves to betting on the dollar-price of gold, the Federal Reserve is content that its rule is absolute. Freedom takes an act of thinking. One must see the dollar for what it is.

Continue reading Slaves to Government Debt Paper

A CBI of 9 & SPX at a 20-day Low

By Rob Hanna

Over the weekend, I decided to run some new studies based on the Quantifiable Edges Capitulative Breadth Indicator (CBI). As I tweeted out near the close, the CBI reached 9 on Friday. Historically, I have viewed 10+ as the level that really gets me excited about a potential bounce. I decided to examine market performance other times the SPX closed at a 20-day low and the CBI reached a level of X of higher. In the study below I hold the market position until the CBI returns to 3 or lower.


As you can see, results when it hits anywhere 7 or higher are fairly reliable. I have highlighted 9 above since that is the current setup. I also generated a profit curve using 9+ as the entry trigger.

Continue reading A CBI of 9 & SPX at a 20-day Low