Murmurs From the 10-Year Note

287
Sat, Aug 18, 2012 - 12:43pm

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: https://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.

Fed vs. Private Sector Treasury Holdings

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.

https://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

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  287 Comments

Purplefrogalphamorph
Aug 18, 2012 - 4:36pm

Too many laws already

I like for con-gress to do nothing. It's better than what they have been doing.

¤
Aug 18, 2012 - 4:38pm

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.

https://www.tfmetalsreport.com/comment/118373#comment-118373

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

TGIF & This Weekend

Dragging this forward from the end of the last thread in response to DT

https://www.tfmetalsreport.com/comment/118356#comment-118356

Here's the chart she alluded to...

Market Emotions

Submitted by DrkPurpleHaze on August 17, 2012 - 10:05am. https://www.tfmetalsreport.com/comment/118348#comment-118348 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Much nicer

Submitted by DrkPurpleHaze on August 17, 2012 - 10:36am.

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

dropout
Aug 18, 2012 - 4:41pm

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.

Really-
Aug 18, 2012 - 4:49pm

@Puck

You're probably right. I guess something too close to reality shouldn't be stated on here. It's pretty amazing what can be stated on here though. Maybe money makes a difference.

Eric Original
Aug 18, 2012 - 4:51pm

Good Job, Turd

You are right back in your wheel house with that sort of post. Keep up the good work.

https://www.urbandictionary.com/define.php?term=wheelhouse

Eric Original
Aug 18, 2012 - 4:57pm

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".

https://www.apmex.com/Product/14242/Denmark_20_Kroner_Gold_Coins__AU_UNC...

berkshire888
Aug 18, 2012 - 5:01pm

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.

tyberious
Aug 18, 2012 - 5:04pm

Stay Focused On The Fundamentals

By any normal standards, this would be considered a depression!

Karankawa
Aug 18, 2012 - 5:19pm

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.

ReachWest
Aug 18, 2012 - 5:21pm

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).

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