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

About the Author

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  218 Comments

Biochar
Mar 20, 2012 - 3:16pm

@ Stock_Canines

I couldn't have said it better myself if I was one of the bankster's trolls... and as usual with such posts you'll get the obligatory 10-12 hat tips

just my opinion

Animal Sacrificebeardeus
Mar 20, 2012 - 3:16pm

@beardeus Re: Facebook

Just permanently deleted my Facebook.

Are you SURE you PERMANENTLY deleted it? If you are and did would you please tell me how to do so? I have deactivated my account over and over only to log back on to check and make sure and every comment I've ever made returns and is placed where I had originally typed it. I think it's literally impossible to permanently delete our accounts (and erase what we have posted from the satanic FB servers.) Please tell me I am wrong and how to extract my information totally and permanently.

Ibu Aye fun o mi opolopo owo

aether
Mar 20, 2012 - 3:30pm

@ Animal Sacrifice

i dont think there is a way to permanently remove the content you created on facebook (i believe they actually consider it their content, not your content)

the only option i have seen it to deactivate the account, which simply removes it from the front end view, but keeps the data stored on servers.

silverstax
Mar 20, 2012 - 3:38pm

Feels great....

To have bought the dip! I managed to get even more shiny than after the last beatdown!!

Common sense dictates that this cannot continue (buying PMs at these prices that is). I won't be able to buy for a while so I have no doubt that I will never be buying silver in the $30s again.

Of course, the laws of common sense don't apply in the paper market, but regardless - we will soon have our day in the sun!

Silverstax

Stock_CaninesBiochar
Mar 20, 2012 - 3:39pm

Funny

My first post on the site and in it I express some concerns that I am sure many are feeling right now - at least many that I have personally spoken with - mainly, that mining shares are just brutalized and the paper price of gold may not ever reflect the true value we think it ought to unless the system collapses. I think many on this site do not necessarily believe the system will collapse and are looking to gold and silver and mining shares as not only insurance, but also an investment. Anyhow, I can see that in uttering these concerns you immediate reaction is that I am some sort of troll who waste his time trying to cause uneasiness on PM sites as if I have an inflated enough ego to think my measly contribution to this site could dictate price or personal action . . . funny

Patrancus
Mar 20, 2012 - 3:44pm

Facebook files

Anything you have ever posted to the Facebook is data that has been mined, processed, cataloged, for future reference by tptb. Forget about deletion, your in their system with whatever you gave them while you were part of their scheme. Now that you have figured out what they have been up to, do not give them 1gram more of your current events.

Mar 20, 2012 - 4:00pm

@Stock_Canines

Welcome on board. You will, as a matter of course for interacting on the interwebs, need to develop a slightly thicker skin... Don't let any individual putdowns get under your skin -- if not a troll, you have nothing to worry about. WRT to your larger question -- yes, there is a very distinct danger that a) mining shares will be further attacked/sold off, that manipulation of PMs will continue. The market can stay irrational far longer than any one of us can stay liquid. The things to keep in mind are that: - mining shares are a long-term investment, and as such cannot be expected to outperform a broader stock market that is currently floating on the vast liquidity provided by central banks - any 'collapse' which may come could very well involve a deflationary leg, driving 'down' prices in doillars - if there is 'concious' wealth redistribution/theft occurring, would it not make sense for those directing it to maximize their loot by acquiring truly valuable assets at the lowest prices? Your stack (both the phyz and the portion in the ground represented by mining shares) will not LOSE value, only denomination in the ever fickle POSX. Dividend-yielding companies like the ones recommended will do fine -- until they do not.

exiledbear
Mar 20, 2012 - 4:03pm

Stare at this marshmallow

If you're patient, it'll double on you. But you have to be patient.

The Marshmallow Test
RobG
Mar 20, 2012 - 4:05pm

Santa and June 2012

I've seen on Santa's site that he thinks things will change drastically around June 2012. I've done some looking through his archives, but I'm having trouble finding why June 2012. Can anyone tell me what he things is going to happen in June?

boatman
Mar 20, 2012 - 4:05pm

RE: This commentary is about 18

yes, TF...

now, and in the decades to come, increasingly the people with their fingers on a 'red' nuclear button will make kennedy/kruschev look like choir boys living in a world that still had common sense[dead n gone, along with journalism]

there will be countries where all it takes is a .45 hit to a sleeping guard's head to get YOUR finger on that button.

in our lifetime there will be a radioactive circle on all maps.....'do not enter for 10,000yrs.'

and some religous zealot not duly elected, ruthlessly running some country will have done it.....to 'rid the earth' of whoever they religously differ with.

one guess on who i have my money on.

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