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Bond rally nearing an end?
- Thread starter gharghur2
- Start date
I've been saying the same thing (and I am no doom and gloom person). The markets (stocks, bonds, commodities, real estate) were all liquidity driven upwards and now they'll all collapse.Quote from BlueHorseshoe:
Marc Faber's note on May 9 reiterates much of what's recently been said on this thread:
One exerpt to the point: "speculation in equities is at least as widespread as in the commodity markets and, therefore, when asset markets will finally correct,
which I expect to happen shortly, all asset markets could sell-off at the same
time â the same way they also all rose in concert since October 2002.
Needless to say that such a correction could lead to a temporary rebound in bond prices."
http://www.gloomboomdoom.com/marketcoms/mcdownloads/060509.pdf
I'm impressed by the knowledge that has been shared here since Friday but I think that as we are about to start a new week, an assessment of the current situation is in order. What is going on and what is likely to happen in the next few days?
To me it is clear that we have a developing crisis of confidence toward the Federal Reserve and that the problems we have with bonds, the dollar and now the stock market was not created by bad economic data but by a perceived gap between the Fed's perspective on inflation and the market's. I saw the current situation evolve from <a href="http://elitetrader.com/vb/showthread.php?s=&postid=996452#post996452">day 1</a> the following way:
<b>PHASE I</b>
On March 1st, bond premiums started to reflect growing fears of inflation after recently released data showed that the CPI and the GDP deflator were higher than expected; that manufacturing activity was also stronger than expected; while Bernanke was expressing the belief that inflationary pressures were contained.
Since bonds were in a downtrend it didn't take much for inflation concerns to be integrated into bond premiums and indeed, by April 20th, the yield curve started to flatten again as bond traders were either showing less concern about inflation or stepping on the sidelines before Bernanke's testimony to Congress a week later.
<b>PHASE II</b>
By adding the possibility of an immediate pause to the possibility of a shorter tightening cycle, Bernanke failed in his testimony to appease what became the driving concern of the bond market. The yield curve started to steepen again until May 1st when what seemed to be a controlled leak to the press reversed the impression that the Fed was dovish. Unfortunately, the lesson was not learned and the possibility of a pause in June was raised again in the May 10th FOMC statement.
<b>NOW</b>
Since the current situation was not created by economic developments per se but by differences in perception between the market on one side and the Federal Reserve and Treasury Department on the other side, things could turn around quickly, based on perception. Also, oil is very likely to follow stocks and drop to $65 this week. But, on the other hand, the dollar index is on its way down to 80, a level where the status of the US dollar will be re-assed again.
<img src="http://realtime.agedwards.com/barchart/customer1/custom/stocks/1453.gif"/>
To me it is clear that we have a developing crisis of confidence toward the Federal Reserve and that the problems we have with bonds, the dollar and now the stock market was not created by bad economic data but by a perceived gap between the Fed's perspective on inflation and the market's. I saw the current situation evolve from <a href="http://elitetrader.com/vb/showthread.php?s=&postid=996452#post996452">day 1</a> the following way:
<b>PHASE I</b>
On March 1st, bond premiums started to reflect growing fears of inflation after recently released data showed that the CPI and the GDP deflator were higher than expected; that manufacturing activity was also stronger than expected; while Bernanke was expressing the belief that inflationary pressures were contained.
Since bonds were in a downtrend it didn't take much for inflation concerns to be integrated into bond premiums and indeed, by April 20th, the yield curve started to flatten again as bond traders were either showing less concern about inflation or stepping on the sidelines before Bernanke's testimony to Congress a week later.
<b>PHASE II</b>
By adding the possibility of an immediate pause to the possibility of a shorter tightening cycle, Bernanke failed in his testimony to appease what became the driving concern of the bond market. The yield curve started to steepen again until May 1st when what seemed to be a controlled leak to the press reversed the impression that the Fed was dovish. Unfortunately, the lesson was not learned and the possibility of a pause in June was raised again in the May 10th FOMC statement.
<b>NOW</b>
Since the current situation was not created by economic developments per se but by differences in perception between the market on one side and the Federal Reserve and Treasury Department on the other side, things could turn around quickly, based on perception. Also, oil is very likely to follow stocks and drop to $65 this week. But, on the other hand, the dollar index is on its way down to 80, a level where the status of the US dollar will be re-assed again.
<img src="http://realtime.agedwards.com/barchart/customer1/custom/stocks/1453.gif"/>
Hi Tony,
I think the long awaited reversals in commodities and currencies are finally here. Gold down $40 from the top yesterday. All USD pairs are way off their top/bottom too.
I think the long awaited reversals in commodities and currencies are finally here. Gold down $40 from the top yesterday. All USD pairs are way off their top/bottom too.
<b>IGNORE THAT CHART</b>
Sorry, I did it again. The IMG link in my last post points to a changing chart. It is supposed to be a link to the US Dollar Index at http://realtime.agedwards.com/barch...&crea=Y&argb=&ch1=011&argc=&date=051306&arge=
Sorry, I did it again. The IMG link in my last post points to a changing chart. It is supposed to be a link to the US Dollar Index at http://realtime.agedwards.com/barch...&crea=Y&argb=&ch1=011&argc=&date=051306&arge=
I see more resistance to the falling dollar than I expected. That's good.
The week is starting on a very positive note for bonds. If stocks don't rebound too quickly, we'll have our rally tomorrow.
The week is starting on a very positive note for bonds. If stocks don't rebound too quickly, we'll have our rally tomorrow.
There will be plenty of opportunities for damage control this week. Bernanke speaks at the Atlanta Fed's hedge funds conference tomorrow evening; John Snow will testify Thursday about the semi-annual FX report to the Senate Banking Committee, and will give a speech at the Bond Market Association annual meeting Friday.
Other speakers this week are Alan Greenspan, Thursday; New York Federal Reserve Bank President Timothy Geithner who will also give a speech at the Bond Market Association meeting; and St. Louis Federal Reserve Bank President William Poole who will take part in Global Interdependence Center discussion on yield curve inversion.
Other speakers this week are Alan Greenspan, Thursday; New York Federal Reserve Bank President Timothy Geithner who will also give a speech at the Bond Market Association meeting; and St. Louis Federal Reserve Bank President William Poole who will take part in Global Interdependence Center discussion on yield curve inversion.