Fall From Grace

The constant and persistent march higher in yields is taking a toll this morning. I do not believe the sell off is due to lack of stimulus out of Japan. Instead, I think this is all about the Japanese carry trade–managers worried about a possible unwind.

These are unfounded concerns and the market will understand this soon enough.

TLT is setting up for a sweet buy soon, most likely in August. Fun fact, TLT has never traded lower in August. I can envision myself (extra Mrs. Fly) positioning into TLT in mid July. As for today, you shouldn’t panic over every single drawdown. This isn’t the end of the world and you know there is a permanent bid in equities.

Granted, we don’t want to see European yields blowing out again. Both Italian and Spanish yields have been creeping up in recent weeks, most likely due to the rise in the yen.

In short, TLT needs to stabilize and the yen needs to continue to depreciate. That’s the recipe for higher prices in this market.