This should be the easiest trade of all time. Whether I get the timing right remains to be seen. But don’t kid yourselves, folks, the world’s central banks aren’t going to let deflation take hold. They are going to fight it until they can’t fight anymore. The proverbial kitchen sink is about to come flying out of the, err, kitchen.
This means QE for Europe, tax cuts/stimulus for China, the Fed talking down the dollar/up the need for inflation.
Post 55% drop in crude, it’s important that you know someone got smashed to pieces on this trade and the move lower was likely exacerbated by forced selling. I read a stat yesterday that pointed to the decline of magnitude that just took place in crude, with 5 previous precedents. In all 5 cases, crude rallied by 50% inside of 6 months, after the sell off.
So, if I am right and reflation is going to happen, what happens next?
-Commodities find a bid.
-The dollar stops going up. I am not a dollar bear because Europe is about to do QE.
-Stocks going apeshit to the upside.
-Bonds get pummeled.
The relationship between the long bond tracking higher with SPY will stop, almost immediately. We are at a tipping point and the long bond must trade lower, or stocks. My position is fairly simple: either TLT drops 15 points or the Dow drops 1,500 points. The market can no longer accept this lack of correlation, based on historical precedence, to continue.
Reflation must happen. Ergo, get your rally caps on.
Top picks: NDRM, TNK, HABT
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Glad I boarded TNK with ya Cp’umm – told ya we’d sink those swabbies! Arrrrrrr. (no gh)
Avast ye swabs! The Capumm has boarded yer ships, taken yer whenches, and sunk yee to tha bottom.
Arrrr.
another thing, Fly. Get over this irrational hatred for the metals. They “fly” too.
Weren’t you saying deflation would kill the market at the lows the other day??
German yields are lower than US yields despite a greater risk of default. There will have to be an equilibrium before TLT sees a meaningful correction, but stocks can keep rallying in the meantime.
ya no Smartest,
I feel bad for those Germans, by God I do… were not just going to have a better market than them, but were going to use their BUNDS to grease our economy… 😉
“Bonds get pummelled” TMV?
Took me profits in TNK, three cheers fer the Cap’n laddies!! Arrrr.
WE WANT 100 NASDAQS!
Only idiots were buying bonds last couple days.
My guess, DXY will hold 92 for a while. To take OA’s analysis, this 92 sideway would be the anxiety phase. Then begin a drop of +- 10$ DXY and a rally in commodities. But what do I know, its just another possible scenario…good luck to all. 🙂
You only get ongoing strong inflation with
wage increases. Any one see that in the
horizon. Up 2% so far today though.
Yes, seeing it regularly all around me
TNK looks like it could run to 8 once it clears 6. I’m going to hold