Ten Ugly Messages from the Bond Market | The Mesh Report

Ten Ugly Messages from the Bond Market

John Thomas April 20, 2017 Comments Off on Ten Ugly Messages from the Bond Market

The global bond markets have been screaming an ugly message at us loud and clear, and I’m afraid that it’s not a positive one.

Amazingly, US Treasury bonds are up on the year. In a single month, the ten-year Treasury yield (TLT), (TBT) has absolutely cratered from 2.65% to 2.16%.

In the meantime, stocks are barely changed, with the S&P 500 (SPY) up a modest 3.94%.

Lead stock, Goldman Sachs (GS), has had its head handed to it, off a heart stopping 16.47% in a month, giving up exactly half of the post election Trump rally. Apparently, they forgot how to trade.

The implications for your investment portfolio are so momentous and far reaching that I am going to have to list them one by one.

Read them and weep:

1) The US is going into recession. The recent spate of “hard” economic data says this is exactly the case, with Q1 GDP forecasts pared back to only 0.5%, Consumer Price Index -0.3%, Core CPI -0.1%, and Retail Sales -0.2%.

2) No major legislation will be enacted into law this year, not for health care, and not for tax reform, deregulation, or infrastructure.

3) The president is a phony. Lots of talk, but no action is something the markets were only willing to tolerate for two months after the inauguration. After that, they went into “Show me” mode.

4) The US is about to enter prolonged ground wars in North Korea, Syria, and Afghanistan. It turns out that bombing foreigners is easier for the president than getting legislation through a Republican controlled congress. It always is.

5) The stock market is about to crash. So far, we have been suffering a death by a thousands cuts. The downside momentum will accelerate once we smash through the 200-day moving average at $221. That “Sell in May” thing is just around the corner.

6) The Trump trade is toast. Financial, commodity, energy, coal, and industrial stocks will lead the charge to the downside. Iron ore prices down by a third in two months says the whole story.

7) The price of oil is about to collapse, once the markets call the bluff on a second OPEC quota extension. Even if they agree, quota cheating is about to explode, dumping millions of barrels of oil on the market before it becomes worthless.

Did you know that alternatives accounted for 50% of California’s total power supply on some days of this week, and that the wholesale price for solar energy fell to zero?

Yet my local utility still has to pay me four cents a kilowatt/hour for my excess solar power.

Ha Ha. Ha Ha Ha Ha Ha Ha!

8) Gold (GLD) will rocket. It has already blasted through its 200-day moving average to the upside, and $1,300 per troy ounce beckons. Gold could imminently hit a four-year high at $1,380, and then eventually the old high of $1,922.

9) The US dollar is headed lower. Take the rising interest rate support away from the greenback, and it should fall like a ton of bricks. The yen is headed to ¥100 a dollar, and the Euro will rebound to $1.10 after the French election. Foreign stock markets will shudder.

10) The unemployment rate, now near all time lows, is about to take off. The great irony here is that while the president vociferously campaigned on an aggressive jobs program, he may well preside over the biggest job losses in history, thanks to hyper accelerating automation and artificial intelligence.

For more on this, please read my recent piece, Why You Will Lose Your Job in the Next Five Years and What to Do About It” .

There is another alternative explanation to all of this.

The bear market in bonds is not dead, it is just resting. So is the Trump trade, possibly for another six months.

A certain Monty Python sketch about a parrot comes to mind.

That all we are seeing is a giant short squeeze in the hedge funds’ 2017 core short position in bonds for the umpteenth time, and that we are almost done.

Hedge funds have grown in size to where they are now the perfect contrary market indicator. It is the classic “Too many people in one side of the canoe” trade.

All that is left is another six basis points on the downside in yield terms, or three quarters of a point in downside in price terms for the TLT.

That takes us down to a 2.10% yield in the ten-year Treasury bond, which was exactly the upside breakout point for bonds in the fall.

That’s where you load the boat on the short side for bonds, for what will become one of the best trades of the year.

There are other structural factors at play here which are hard to beat. For more on this, please read my opus on Why Are Bond Yields So Low.

Want to know what John Thomas REALLY thinks?

Click here for a free global strategy webinar giving John’s 2017 outlook on stocks, bonds, foreign exchange, commodities, energy, precious metals, and real estate, and YOU TOO can make 38% a year!

Comments are closed.