Murmurs From the 10-Year Note
What happened? Just a few weeks ago, we were worried that the treasury market was becoming a "black hole" that would soon suck in all financial assets. Instead, rates have reversed significantly. What does this mean and what does it portend?
First of all, here's where we were back in late July. The 10-year note had just fallen through 1.40% and it had everyone's attention: http://www.tfmetalsreport.com/blog/4046/two-things-my-mind. Here we are, 3-4 weeks later, and were at 1.82%. That is a HUGE move! What the heck happened? I think I have an answer but, first, some background.
Take a look at these two charts. One a is daily 10-year and one is a weekly. Note that the current price of the 10-year is 132.50. This is important because the area around 132 appears to be very important support. You can plainly see horizontal support on the daily chart but, looking at the weekly chart, 132 is also near the trendline from the lows of late spring 2011. Breaking that support and that trend would set a top and would foreshadow a move to 127-128. Now, look at the weekly chart. Notice that 10-year prices have been in a very long term up channel. Then notice that the past three Fed "programs" have been initiated when prices were near the top of the channel.
So, what is going on? Why the sudden dropoff in price? I think I have the answer. I posted this presentation yesterday. You may have already watched it. Watch it again and stop it right at the end, near the 57 second mark.
Simply put, The Fed is out of bullets. The goal of "Operation Twist" was to create demand for the 10-year and the 30-year, thereby keeping rates low and in a downtrend. They accomplished this "sterilized" program by selling their short-term bills and notes and using the proceeds to buy longer term notes and bonds. Now, look at that final frame again. The Fed is now out of paper to sell. Their current holdings in the 1.5 year and less range are negligible. Therefore, they have no more ammo. Now look again at that last frame. The Fed now owns nearly 70% of the outstanding 10-year note inventory. They are that market. There is hardly anyone left besides the Fed and the Fed is out of cash to keep it going. Suddenly, we have a simple imbalance of more sellers than buyers and...down goes price.
Notice what I said above, "the Fed is out of cash". Like athletic momentum or alcohol-induced desire, this is but a temporary thing. Let me state this clearly again: THE FED CANNOT AND WILL NOT ALLOW RATES TO RESET HIGHER. THE RESULTING BURDEN OF HIGHER INTEREST COSTS ON THE ALREADY ACCUMULATED DEBT WILL ONLY SPEED THE DEMISE OF THE PONZI AND THIS CANNOT BE ALLOWED. Therefore, with rates backing up and with the Fed out of liquidity to support a turnaround, the only option left is a re-ignition of overt quantitative easing.
Will this announcement come from Jackson Hole? Will it come from the next FOMC meeting on 9/12-13? Will it come at the following meeting of 10/23-24? It's impossible to say but what is possible to say is this: Watch the 10-year note. It will tell you.
One more thing for which we must be on guard. Look again at the 10-year daily chart. Do you see the sharp drop in price back in early March. If memory serves me right, wasn't that drop blamed for the demise of the JPM "London Whale"? Didn't everyone conclude that that particular, 4-point move in the note caused a derivative loss for JPM to be somewhere between eight and ten billion dollars? Well, since late July, the 10-year has dropped 3 points. I wonder if any of The Fed's primary dealers are feeling a bit of a pinch right now? Something to think about, that's for sure.
Now, before we get ahead of ourselves, we need to examine the Long Bond and The Pig for confirmation. Their charts are clearly rolling over but, unlike the 10-year, they are not in imminent danger of breaking trend. They must be watched closely, though, as a further break down in each will only serve to apply even more pressure to the 10-year note.
OK, just a couple more things and then I'm taking the rest of the weekend off. First, yesterday's CoT was very interesting, particularly in silver. Before jumping to conclusions, I'm going to wait to see what Uncle Ted thinks of the disaggregated report. In the meantime, here's a C&P of my comments from yesterday afternoon:
Submitted by Turd Ferguson on August 17, 2012 - 2:59pm.
MODERATOR
I had expected gold to be a non-event and it was. For the reporting week, price fell $10 and OI only fell by 67 contracts. The only item of minor note was the 2,478 net drop in The Gold Cartel net short position which brings their net short ratio back under 2 at 1.98:1. Again, this is historically low and very bullish.
The action and the intrigue is in silver. For the reporting week, silver fell 32c but total OI rose by 4700. Obviously, there was a lot of new buying and selling going on. The question was/is: Just whom was on each side? Well...whaddayaknow...it looks like we have a civil war starting in silver.
For the week, The Silver Cartel total long position grew by 3,202 contracts. This is likely the silver "raptors", as Uncle Ted likes to call them. However, The Silver Cartel total short position also grew by 4,752 contracts. This is likely JPM but I'll wait to see who Ted fingers in his report tomorrow.
I've never seen a Silver Cartel long position this high before. Never. Maybe it has been but I sure as heck don't remember when. For perspective, on 2/28/12 it was 33,802 and on 4/20/11 it was 34,043. Nearly identical levels before sharp beatdowns. On 12/27/11, just before a 2-month, 20% UP move, the total long position was 41,224. Now it's 47, 797!
Similarly, the total short position is unusually large. The last time it was this high was on 3/6/12, just after the peak and subsequent beatdown of late February. In the recent past, it has been as high as 89,827 on 4/6/11 and as low as 55,356 back on 12/27/11.
At first glance, we appear to have the makings of a civil war. Instead of acting collusively, the smaller banks seem to be buying and thus attacking the short position of JPM. To contain price, JPM is being forced to issue new paper independently. Again, this is how it appears. Let's wait until Uncle Ted dissects the report before jumping to any more conclusions.
Perhaps the smaller sharks smell blood in the water. Maybe they sense the opportunity to trap JPM on the short side and squeeze the daylights out of them. Could these banks be expecting an historic, hot and explosive move in the weeks ahead???
And then there's this. While researching this post, I came across this video from March 19th. I don't know who this Ilcyzsyzn guy is but, right now, he looks like Nostra-freaking-damus! Hopefully, he's made himself enough money over the past six months that he can buy himself a couple of vowels.
http://finance.yahoo.com/blogs/breakout/wait-gold-bottom-1525-ilczyszyn-202824187.html
I hope everyone has a great weekend. Relax and prepare mentally for everything that is soon to come.
TF
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Comments
Moving forward...read on
Just saw the comment above. Were way past the point of pointing fingers and 'going there' again so I wish no one continues to do so.
TF has a very big tent he's propped up here and the air has been cleared out from under it recently. It's big enough to include everyone if were all going to be under it.
Here's a timely repost from yesterday.
http://www.tfmetalsreport.com/comment/200892#comment-200892
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
TGIF & This Weekend
Dragging this forward from the end of the last thread in response to DT
http://www.tfmetalsreport.com/comment/200870#comment-200870
Here's the chart she alluded to...
Market Emotions
Much nicer
I agree DT and to think all it took was a slow knife fight the last few weeks. Ouch!
I think this weekend on here, demeanor wise, is an important one for the site and I think all of us in here (and the lurkers) want and need a relaxing one.
TF certainly does, so lets give him one.
So to that end, I'm committed to being just that....relaxed and positive and trying to inform and keep things moving along. Some hard news would help all of us out and get us to focus on something instead of this 'nothing' market and especially what appears to be a lack of any plan on TPTB's part at this time to seriously address it. I think they're worried also and prepping.
My personal opinion right now, is that their attention is distracted from what is lining up in MENA and that they know is about to take place. Sadly, war has always played a economic part in the reason why they might be waged. The resulting destruction always prompts growth through rebuilding. It would give the CB's and TPTB the opening to do massive QE without any publicity or market fanfare.
Regarding wartime QE. They didn't have a name for it 'back then' but the amount of money that was added to the money supply during WWII must have been immense and without scale on a inflation adjusted basis. Think about it.
The Govt. put lots of capital to work suddenly and it never had a name attached to it except for "the war effort". I'm not sure how the market reacted to it back then because they were probably worried and more concerned about Pearl harbor and everything else that was going on . But that unnamed QE back then by all the worlds Govt.'s (especially the U.S.) was a giant stimulus and we all know what gold was doing back then at that time....nothing. This time will be different.
War brings economic activity before, during and after the conflict. Growth through destruction is an old concept.
Twisted logic maybe, but that seems to hold true.
TGIF
Stay Focused On The Fundamentals
ALL FUNDOS ARE WORSE.
Look at things that aren't messed with by the crooked government stats or the controlled main stream media.
eg:
1/ Rail car loadings for scrap and waste - way down means less manufacturing - less jobs
2/ Container traffic loaded versus empty in and out - more empty out then loaded means less exports
3/ All North America rail traffic, specifically gravel and aggregates - construction almost non existent
4/ Real time payroll tax with-holdings - down with many less employed - higher debt
5/ Baltic Dry Index (BDI) taking a big nose dive - has not touched its 200 day MA in over 4 years
6/ Refinery deliveries of gasoline and diesel - way down - not as many miles driven
7/ Ceridian-UCLA Index - limping along at September 08 levels with no improvement - what recovery?
8/ Using shadowstats real statistics - the Misery Index (inflation+unemployment) is +22 this is BAD
9/ Number of food stamp recipients continues to rise
Could go on with about a dozen or so more examples of such fundos, but you get the idea. With NO improvement of the fundamentals in sight, the price of gold and silver will do nothing but rise in value, as the value of fiat currencies decreases. There is NO political will or courage to do the "right" thing, far from it, there is no "rule of law."
There now is only one and one only wealth protection - holding physical gold and silver outside the system.
Good Job, Turd
You are right back in your wheel house with that sort of post. Keep up the good work.
http://www.urbandictionary.com/define.php?term=wheelhouse
And now, for something completely different
Anyone into Danish 20 Kroners?
At .2592 troy oz Au, they have a distinctively satisfying chunky feel as compared to a Sovereign (.2354) or a Mex 10 Peso (.2411).
A couple of years ago they were hard to find, and commanded ridiculously high premiums. Nowadays, APMEX carries them regularly, at a very attractive premium. They come in three varieties, Christian, Frederick, or the older "Mermaid".
http://www.apmex.com/Product/14242/Denmark_20_Kroner_Gold_Coins__AU_UNC_...
Gold's current correction:
Looks as though gold peaked on September 6, 2011. Sure would be nice to have the correction be over before the 1 year anniversary.
Stay Focused On The Fundamentals
By any normal standards, this would be considered a depression!
Other Options?
Outstanding analysis, Turd. And, it makes perfect sense the way you explain it (especially when coupled with that time-lapse video of Treasury Holdings).
So - does that leave the Fed with Overt QE as the only tool remaining?? I still expect them to pull out some other oddball stimulus from their bag of tricks. (Of course it won't work and I don't have a clue what program it might be). I just get the feeling that they are very hesitant to go with basic QE liquidity injections. I feel that they want to inject liquidity without it being obvious to the masses. (But, what the heck do I know)
Once they go the Overt QE route - they are done. Done. Done. Done. I base this on the fact that the first 2 QE attempts didn't do much (nothing to resolve the root problem) and the half life for each QE seems to grow shorter with each attempt. No options remain past the next Overt QE, other than to print to infinity (As Sinclair says). Is that the point we're at? (Or am I missing something).
Thanks Turd, for your thoughts on this.
I haven't been able to focus on anything else marketwise for the last 4 days or so. The interest rate IS the currency or put another way, manipulating the rate by overt and covert means is simply a tool of wealth transfer. Either immediaty or by slow drain on savings.
I think MOPE took a big hit when people realized the implication of a 'mangaged' LIBOR rate. Notice you don't hear anything about it on the MSM anymore.
Too late, that bell has been rung and and a growing number of sheep with deep pockets realize why they aren't as deep as they used to be.
Can't run a successful con when the confidence goes away.
10yr
Yes, either out of bullets or we are looking at risk off (or both).
Money is moving into the equity markets (S&P up etc), perhaps moving away from bonds pushing rates up?
Time will tell. I do like the live graph though.
Bugzy.
@Purplefrog
political hijackings
Sorry about my part in the political hijack of this morning's thread, but all in all, I think the discussion was civil. In fact, I have felt a breath of fresh air in the discussions for most of this week.
I was particularly impressed with Dracula's post on the methods of trolling and site destruction and have wondered how much of that has occurred here. In fact I was so impressed I tried to streamline the content of that website below and add another method:
Methods of Organized site attacks:
1. Burying the gold AKA forum sliding where inane posts by EE operative quickly push the good posts off screen—effective with forums that are threaded.
2. Bandwagon attacking AKA consensus cracking—where specious position by EE operative is seconded by many other by EE operatives
3. Distracting AKA Topic dilution where important topic is overwhelmed with inane posts by EE operatives
4. Spying AKA Information collection by EE to generate statistical profile of overall membership
5. Baiting for court AKA Anger trolling—where hot buttons are pushed by EE operative to get members to sound off with incriminating attitudes and especially “quotable-s.”
6. Infiltrating Aka Gaining full control—where EE operative weasels into moderator job… purpose is to direct forum back to #5 to gather incriminating quotes.
7. Shutting it down. Cyber attacks, overwhelming the servers, court order.
8,. (My addition) Pointless Distractions-- AKA the red herring...such as thread hijacking posts about WTC7, JFK, or Aliens (nah--thats just fun to talk about). Such distractions cause people to get disgusted and leave the site.
Thanks Dracula. May Turdites hat tip you 1000 times.
http://cryptome.org/2012/07/gent-forum-spies.htm (right click and select "open in new tab or window)
Great post Turd. Thanks! I
Great post Turd. Thanks! I do not understand all the action of bonds but I know they are the dog that wags the tail so any education on that is appreciated. I still have a hard time understanding the relationship between the different bond metrics.
Specifically, the percentage charts vs the nominal number chart like the ones you posted at the top. Why the two different measuring sticks for one product? I just don't get it. Is one used to keep score for economists and the other is used for the street bets? Down is up and up is down. Just confusing.
Anyone? Bueller?
Options
I think they could just keep on buying the short dated stuff via Op Twist while creating all of these longer ZIRP UST obligations and just keep kicking the can for awhile. I don't see a Fed audit (a true believable one) happening anytime too soon and all the information we rely on for anything accurate is provided by them so whose to say what's the real numbers were talking about to base anything off of?
The Operation Twist is a big deal and they'll keep stretching it out for as long as possible. They're only treading water and no real growth is taking pace but that didn't happen in the depression either and look at all the expansion that took place since then, albeit different circumstances and debt levels etc. back then but it looked bleak back then also.
I hate to say it, but war of some magnitude can get them out of this and it's happened before in socio-economic turmoil. War allows them to spend unashamedly and above board as part of a war effort of some type. I don't think war is a conscious plan that's on the table all the time in case times get tough all over but I think it naturally tends to gravitate there as more nationalistic qualities and tendencies start to emerge along with long held biases and acrimony start to spill out.
Greeks hate the Germans because of WWII and all the other bitter histories between most countries over there.
Other options for the US are to go to a new class of 50 yr UST that holds out a promise of who knows what. If they were smart about it they would attach some type of real estate (land parcels?) or mortgage backed promotion of some type. Short of something creative by them, I see a possibility that in the future that it's mandatory for funds of all types to have a certain weighting of UST's of all classes or just a new 50 year at a ZIRP level. That 5o yr UST would be just enough of a revenue earner to keep paying off the short term obligations out into time for a long time.
The paper they are creating now at these rates, even the 30 yr UST, will be able to be paid off in the future if they just keep paying off the short term obligations and put Op Twist as a permanent feature. They could do so very easily.
War or 50 yr. UST's seem like they would promote growth. One way is ugly and happens frequently in history. The other way would be a new way to kick the can much, much further down the road with relatively cheap rates attached to that paper far out into time.
50 year UST's will happen, sooner then we might think. They just need to be a little creative.
Buy A Vowel
Rep. Alan Grayson: "Has the Federal Reserve Ever Tried to Manipulate the Stock Market?"
Ebay silver coin scam /misrepresentation revisited
In case no one noticed ebay yanked that auction before it played out. Justice for all......sometimes.
Exiled Bear
One thing I am certain about as well is J Lo's bottom is certainly not trivial!
ATB 5 ounce coins
A couple of weeks ago someone on here (?) was talking about the ATB five ounce coins. Well, I just received the "Chaco" and "Acadia" coins today, and like my Yunque, Gettysburg, and Olympic, they are beautiful! For those not aware, these coins are also avaiable in 90% silver quarter proof sets for 2010 thru 2012. I have purchased the proof sets for both of my kids and they are really nice as well. I am going to order the three I am missing from last year, as well as buy the remaining two from this year when they are avaialable, but the 2010's (which I would love to have) are too expensive for my liking.
For those of you who, like me, have every coin in the Canadian Wildlife Series, it appears the "Antelope" coin has been delayed until Sept 21st. I hate to pre-order coins that I won't receive for a while, but am thinking of doing so in case there is a price explosion between now and then. If my memory serves me, someone (can't quite remember who) has predicted some sort of explosion before the end of summer.
Anyway, I love the ATB 5 ouncers. For some reason, really large coins float my boat more than bars. I have a 10 oz and a kilo LunarII Dragon coins that gets my juices flowing.
Sorry if you don't find this post relevant, but I am 43 and love to play with my silver. Oh well, time for a boat ride.
If it`s vowels you are looking for...
The Government has loads, mostly I`s, O`s and U`s
ag1969
Most relevant post of the day. I'm trying to float a few libertads across the Rio Grande tonight myself. Between the banditos and the drug lords it's getting tougher, at least until you get to the US side where it is clear sailing. Have to be careful and hope my raft doesn't turn over and lose the load.
Good Afternoon all you insane, lonely, rich, violent Turdites
Miss "Convict in the public eye before any trial" at it again...
ag1969 - ATB's
I know how you feel about the ATB's, I love them too. I only have bought the ones that I've been to. I have the Hot Springs, Gettysburg and Acadia. I just buy lots of them. Maybe I need to take a road trip and get about.
Can't wait until 2015 when the Saratoga Battlefield ones come out. I'll be a huge buyer of those.
Of course it's relevant! There PM's aren't they?
Also locked in the Antelope coins. If they don't go up before they arrive, I'm bettin' they will soon enough.
The Fed's credit card
The Fed's credit card does have a maximum limit, but their bank keeps raising it. It would be nice to be sent one of THOSE in the mail. I'd buy up all the available silver for starters. Just add some more zeros to my limit Jamie D. Thanks.
Info
TF
One thing I don't get is when you say the government is running out of money. Don't know if you ever had a chance to watch this five part video series. I posted it a little while back.
Bottom line is the Treasury runs the Fed. It has above the law funding that no one gets to learn about. Part five was killer.
Exchange Stabilization Fund by murphy
After watching Chris Powell's interview with leggy Lyster from RT the other day, he pointed the finger at the ESF. I came across this.
http://www.zerohedge.com/news/presenting-exchange-stabilization-fund-5-p...
Dyna mo hum
Thanks for the update! Justice, indeed.
I wonder if anyone bought any of them? Hope not.
@SaratogaPrepper and El Gordo
I have been to Saratoga a few times myself, that should be a good one. I only have 1 each of the ones I listed and am trying to complete the 2011 and 2012 sets. Thanks for shoving me off the fence, I am going to order an Antelope tube from Provident as soon as I am done with this post.
Gordo, LMAO. I don't know a lot about Libertads, I have only purchased two of them in all my stacking days, and I gave 1 each to my kids. My kids are 4 and 5 and each have a pretty impressive stack for their age, including African Elephants, Dragons, Taku's, Libertads, Canadian Wildlife, Kooks, ASE's, Maples and a good amount of junk. I hope they appreciate it some day!
I see a lot of posts asking what to buy. Since I have no idea what is best to own, I buy a little of everything. Variety is the spice of life! Cheers!
@swampgas
At least 5 times in the last 5 years I have opened a JPM credit card account with a 0% introductory rate for varying time periods. All five times I maxed out the card the day I received it with silver and paid it off in full on the final day of the teaser period and closed the account. Just my little way of sticking it to the man!
@DPH
The bid was 116 or so for the 4-coin lot when it was mentioned here. I have no account otherwise I would have "politely" asked if he was aware that there is a counterfeit coin in the lot.
Here's a good consolidated listing of current ebay prices for various silver products: http://www.24hgold.com/english/buy_sell_silver_coins.aspx?co_id=0
@Murphy
You lost me at "Treasury runs the Fed"
DT
Have you watched the videos in the past? It explains how. He does a much better job of it than I could.