Ray Dalio thinks bond markets are on the brink of a significant shake-up.
Dalio, the billionaire investor who created Bridgewater Associates, wrote in a Linkedin.com post on Tuesday that “there’s a significant likelihood that we have made the 30-year top in bond prices.” When these extreme moves happen, some investors will be shaken out of their positions, “making the move self-reinforcing” for a while, he wrote.
I’ve been saying some very similar things over the last year. Bonds embarked on a multi-year trend that took prices as far removed from their longer term trend as they tend to get. Last I spoke about this, I referenced my 1998 analogue, and a similar trend structure. Here’s a recap of those charts:
25 Year Chart of 30 year Treasury Index
3 Year Chart $USB: 1996-99 Momentum Trend Reversed
3 Year Chart $USB: 2013-2016 Momentum Trend Top
As I’ve said most of the year, this is the most crowded long I’ve ever seen. As it should be. It’s a 30 year trend. However, this year, I’m curious as to exactly how popular this ticker symbol became to the unwashed. It reminds me of my first ever $GLD trade. I bought $GLD for $62.50 in 2006 in my long term account, and added multiple times on the way up. At the time, I had a significant audience via my blog, podcast, and through work at Investools/thinkorswim. The concept of trading Gold was so foreign to retail traders back then, but 5 years later, I couldn’t go a day without being asked about it. Same seems to be the case with $TLT over the years.
Here’s the updated chart of the last 3 years:
Perhaps this is the spot for a technical bounce, but with this trend getting faster the lower it gets, I’d rather watch others play with fire here. The unwinding of these trends gets very messy, but they unwind nonetheless.
The most important element I discussed in this topic was not bonds themselves, but how stocks reacted after these selloffs. This was another staple to my bullish argument over the longer term.
Thoughts?
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