Keep Watching The Bond Market

218
Tue, Mar 20, 2012 - 11:21am

The past week has seen some rather sharp selloffs in the U.S. treasury market. Is "Operation Twist" failing? Will we soon see a resumption of overt quantitative easing?

Diligent Turdites will recall that we've been discussing this possibility for months. For me, the key to correctly anticipating the resumption of overt QE is found in watching movements of long-term interest rates. As often stated here, The Federal Reserve cannot allow interest rates to rise. Keeping rates low and funding the federal budget deficit are the two, primary goals of quantitative easing. Therefore, dropping bond prices (higher interest rates) signal that more QE (Fed buying on bonds) is necessary.

Well, what to make of these charts? We know from reviewing the long-term charts of the 10-year and the Long Bond that previous drops in price preceded the announcement of QE1 and QE2. We're almost there again. The 10-year is now perched precariously above the all-important 127.50 level and the Long Bond just had it's initial test-and-hold of support at 135. Note that, prior to these latest drops, the bond and the note had been in rather tight ranges since the Fed began "Operation Twist" in September of last year.

With bond prices being near these critical levels and having gotten there so quickly, we almost have to expect a rally here. The question then becomes: What happens next? I'd expect 127.50 and 135 to hold for a while longer but, if those levels fail, QE3 should be right around the corner. Already, there are some folks out there who think that The Fed will announce QE3 in April or June. https://www.zerohedge.com/contributed/2012-10-05/probability-map-morgan-stanleys-vincent-reinhart-still-says-75-chance-fed-qe3 If rates keep rising, those pundits will be proven correct.

The current beatdown in the metals began inexplicably last evening. Whenever you see gold drop seven or eight bucks, out of the blue, on no news, at 9:00 pm EST, you know that a raid is coming. Lo and behold...we got one. Gold reached all the way down to $1640 overnight and silver touched $32. That the selloffs ended there should be no surprise to anyone as those are currently our two main, short-term support levels. For now, the pressure is off but there's really no reason to get excited just yet. The metals remain in their recent ranges. Gold between $1640 and $1670, silver between $32 and $33. Once the metals pop UP and out of those ranges, the bottoms will be set and we can begin to get excited again. Until then, I'm waiting patiently just in case one more leg down toward $1625 and $31 develops.

I hope you have a fun and stress-free Tuesday. TF

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Boswell
Mar 21, 2012 - 5:13am

UPS Guy?

I get mine delivered to work where there is quite a volume of shipping.

(lost in the crowd?)

achmachat
Mar 21, 2012 - 4:41am

being watched or not...

this very moment I received another shipment of Maples!

(i wonder if the UPS guy wonders what's inside those strangely heavy little parcels)

oh and:

HAPPY NEW YEAR!

El Gordo
Mar 21, 2012 - 4:15am

Mr. Ant

Currencies merely serve as a vehicle to facilitate trade and exchange - they do not serve as a store of wealth. Currencies are dependent upon the public's willingness to accept them in exchange for goods and services, known as "public confidence" and nothing else. They tend to trade in relation to other currencies depending upon the perceived strength of each sovereign relative to the other as it changes from time to time. I always keep some dry powder and what I need to live on handy, but long term, I getting away from paper assets and into hard assets.

Boswell
Mar 21, 2012 - 4:00am

RE: You are Being Watched!

Funny you mentioned it...

A friend at work was going to order some special citrus seeds on ebay, he didn't actually buy them, but months later some "Agriculture Dept" guy comes to his house, flashes a badge and asks a bunch of questions about it!??? He told me the story today!

zilverreiger
Mar 21, 2012 - 3:38am
edAnt
Mar 21, 2012 - 3:35am

Ant - AUD

Ant

My opinions

1. Right Now .... I do not believe the AUD is a "safe haven" currency. The economy is too narrow and trade dependent and, generalising, I suspect there is an international perception of political risk (minority government, changing tax policies etc). The USD and CHF I believe are the current safe havens - USD has an exceptionally well diversified economy, with low trade reliance on other countries. The Swiss are independent and have centuries of history of being fiscally conservative.

2. Going forward in (say) three years time - I have not assumed any major changes in world currency arrangements (eg introduction of a gold standard etc) .... The AUD (and NZD, NOK etc) may appreciate vs the USD, EUR, JPY etc but this is due to the relative strength of their economies in an environment of high commodity prices. In the event of a major global shock I would still expect the USD to strengthen, even if by that stage it is quite a bit weaker than now. So AUD still not a safe haven.

Its possible that in time gold will become the new safe haven currency, replacing the USD. For that to happen, the monetary authorities will need to have significantly less influence in the paper gold market.

Just my thoughts

Ed

Ant
Mar 21, 2012 - 2:48am

Ed

Thanks for that. It was just that Crimson had said he/she could get silver ounces or coins from AMPEX for a 12% premium, and was questioning the 25% number. I am currently considering a purchase in silver, and am reasoning that, while gold is a store of long-term wealth, having one ounce silver might be a good idea for small purchases if things actually do go chaotic for a time prior to financial system reset.

And if you are an Aussie, maybe you can help me with a question I have asked about three times on this forum, but never got an answer. Do you reckon the AUD is more of a safe haven currency, or that the looming financial crisis will take most other currencies - including the AUD - with it?

Straying From the Flock
Mar 21, 2012 - 2:18am

Watching, waiting, stacking...

Here is sit in my hospital bed, a story for another time, reading the speech that Uncle Ben will be regurgitating to Congress tomorrow. As I wade thorough the onslaught of babble that lays before me; I had to keep reading the conclusion over and over again. Because it seemed to to me that, among the lies of reduction of financial stress in Europe, he was saying exactly what we have been waiting for him to say:

Conclusion
The recent reduction in financial stresses in Europe is a welcome development for the United States, given the important trade and financial linkages connecting our economies. However, Europe's financial and economic situation remains difficult, and it is critical that the European leaders follow through on their policy commitments to ensure a lasting stabilization. I believe that our European counterparts understand the challenges and risks they face and are committed to take the necessary steps to address those issues.

For our part, the Federal Reserve will continue to monitor the situation closely, work with our financial institutions and foreign counterparts to enhance the resilience of our financial system, and be ready to use our tools to help stabilize U.S. markets should the situation require such action.

Just what tools are uncle Ben referring to? I can think of quite a few tools laying around the various Federal Reserve banks, but I believe that he is referring to overt Quantitative Easing 3.0. Better known as, the fast track to the end of the U.S. Dollar. I knew that since he was going to Congress tomorrow to tell them a little bed time story, that the PM markets would tank. Please refer to the great Leap day clusterfuck if your memory is a little hazy. Now I can expect to see blood flowing through the pits in the morning.

I have a little dry powder for the mornings skirmish set aside. I have been reading Katie Rose's posts about her farm and pausing her stacking. I too have been reducing my stacking in the attempts to fill in the holes in my other preps. I fear that the window of opportunity for me and my wife has all but closed. We have a home outside of a major city, but not a sustainable farm. I have several "square foot gardening" boxes that have proved year in and year out to provide the vegetation that we need with very few trips to the grocery store.

I only wish that we had the means to acquire a small plot of land (aprox. 5 acres) outside of the main population area. Unfortunately we do not. Our home is just barely above water (till the next property value report) and I have fibromyalgia, which leaves us with one income. I stack when I can, and I try to prepare us for what is to come. I only hope that it is enough.

Here is the link to Uncle Ben's testimony for tomorrow:

https://www.federalreserve.gov/newsevents/testimony/bernanke20120321a.htm

Take care of yourselves.

RGD

Now, far beit

worldend666
Mar 21, 2012 - 1:56am

@ Turd

>>I've noticed that sentiment on this site seems to bottom at roughly the same time that price bottoms. There's also a direct correlation between price bottoms and overall site traffic. If I can come up with some way to quantify everything, we might be able to formulate an index that would help us diagnose buy and sell signals.

Yes I noticed this too a year ago. I wrote a note on it here:

https://www.anotherway.org/2011/05/the-silver-price-and-alexa-rank/

It would be great if you made your site logs public so we could track your traffic volume.

ActionFive
Mar 21, 2012 - 1:05am

Miners

HUI looks right there EOD Clark.. Up or down?

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