RaginCajun and The Fly both pointed out the strength in Treasuries last Friday. I wanted to give you a long-term look of TLT, as I have done in the past. The main point that I had made over the prior eight months or so was that TLT failed to get violently rejected at those 2008 highs. Instead, it seemed to have consolidated in a relatively orderly manner. Bond bears had plenty, and I mean plenty, of chances to break the back of the Treasury bull in recent months, all for naught.
Currently, TLT is threatening a major breakout, as investors have failed to accept the thesis that Uncle Sam’s word is no longer his bond. Given the continued inverse relationship between bonds and stocks, this development merits your attention. Without a complete detachment of that inverse correlation, it is hard to see stocks gaining traction to the upside anytime soon for more than bounce if TLT can hold above $123. I am not huge fan of doing detailed technical analysis on TLT, but that looks to be the level to watch. Obviously, equity bulls would love nothing more than to see a false breakout in TLT followed by a that’s-all-she-wrote reversal lower. A continued push higher would likely just bring in even more fear and risk aversion to all risk assets.
One thing is for sure, though–It is incredible to consider that TLT is now higher than it was at any point during the historical 2008-2009 bear market.
___________________________________
Yeah, as I mentioned in 12631 this past week, if there are bank runs in Europe, and/or if JPM is going bankrupt from all its messy high-risk derivatives trading, no one is going to say “Oh, wait, TLT is outside of its upper Bolliger Band. I guess that means I have to stop buying Treasuries now.”
OTOH, if such fears turn out to be unfounded, TLT could turn around and crash, as people rush en masse into equities.
TA is useful most of the time. But thisis a rather extreme situation. If either of these things happen, TLT could move too quickly for anyone who is not glued to the computer screen every minute that the futures market is open.
JPM go bankrupt from a 2 billion loss on a trade? Say what?
They will still turn profit on the quarter.
http://ibankcoin.com/news/2012/05/20/ft-jpmorgan-unit-holds-100-billion-of-risky-bonds/
Check out the period end 2008 to early 2009: bonds down stocks down. When the “bombs” start dropping there will be no safety in the $TLT cave. It’s been a 30 year bull market in bonds. This too will pass. FD: Short bonds through $TBT.
Short bonds by buying gold! Paper instruments like $TBT may end up in smoke.
Why not short bonds by shorting bonds? Isn’t the medieval valuation of shiny metal more of a bubble/risk than betting that industrial civilization will continue?
Why do gold bugs always take it one extra level of crazy? Betting against government bonds has been a very bad trade for 30 years. Maybe this time is different, but that doesn’t mean the world is going to end.
Better make sure that gold is physical just in case we go back to a complete barter system and you have to go door to door looking for mortgage financing, or ask your neighbor if he’ll be the counter party for your car insurance.
When the hoards are wild in the streets, gold will be of little value unless you also got a tank. Someone with a gun will just take it from you. You think you will buy food with it? Or bribe someone to escape the country? You will be dead in a ditch. When things get to the point that you would really use your gold, the world will be too far gone to be enjoyable to live in. Enjoy yourselves now while there are still beautiful places to visit and things to experience. Go for a walk in the park. Eat you favorite foods. Make love to your wife. Hug your kids. Sol in Solyent Green had it right. Savor your memories.
I’d rather not do second order trades. This job is tough enough without guessing how gold will react to a bond sell off.
Like I mentioned on RC’s blog, TLT started darting higher Thursday morning at the same time as gold and silver due to increased expectation of QE3. I don’t read anything more into it and it doesn’t really bother me from a stock standpoint since I don’t think it signals anything in that regard. Yet, anyway.
When traders expect QE3, stocks go up.
I used to think of treasury yields like I thought of the VIX. They would generally meander around a base and then spike higher in times of crisis.
As much as I hate the “this time is different” line, it really looks like we’re undergoing a structural shift in yields here. Or we have been undergoing a shift for some time. I can certainly envision a world where the 10 year is permanently sub 1.5%, regardless of inflation and we just stay there for the foreseeable future. It doesn’t mean the end of the world for stocks. It doesn’t mean we’re in a bond bubble. It just means that the way we use treasury yields to gauge the rest of the market is changing.
It happens to everything. Broad correlations don’t last forever.
Things are not 1/4 as bad as late 2008. TLT is in its final double top. Once the Fed moves on and begins to buy MBS type of paper next you might as well start traunching into long 115/110 TLT puts with 2013/14 exp dates. This is the no brainer trade of the new decade, yet it feels so scary to do, it easily qualifies for my 3 to 1 odd as a safe asymmetric trade opportunity.