Watching The Bond Market

43
Wed, Jun 25, 2014 - 10:27pm

As treasury rates fall once again, it's time to consider once more the Turdville notion that interest rates cannot be allowed to rise. Higher rates accelerate the demise of The Great Ponzi and The Great Ponzi must be maintained. Those expecting a bond "bear market" have been wrong for the first six months of 2014. They'll be wrong for the next six months, too.

Again, why does this matter to gold investors? Because of all possible economic conditions, a world of negative real interest rates is perhaps one of the most precious metal bullish. Why?

The old adage is: Why should I own gold? It doesn't pay a dividend. It's just a piece of metal, a barbarous relic of the past.

Many hedge fund, pension fund and money managers believe this nonsense and are thus only swayed to own gold during periods of inflation and negative real interest rates. Again, what is a negative "real" interest rate?

A "real" rate is the return on investment after adjusting for inflation. A simple example looks like this:

10-year Treasury Note = 3%

Inflation = 4%

"Real" rate of return = -1%

Read more here: https://en.wikipedia.org/wiki/Real_interest_rate

In this scenario, the Keynesian relic of a treasury bond doesn't pay any "real" interest, either. After inflation (and we haven't even mentioned taxes), the adjusted return on your investment is negative. Dat no good. Why not own gold, instead?

Entering 2014, there was all sorts of talk and forecasting based upon higher interest rates this year. Your pal, Turd, stood virtually alone in forecasting lower rates, instead. Why? Well, you can search this site for all sorts of examples but here's just one for background: https://www.tfmetalsreport.com/blog/4786/terminal

Back on 12/31/13, I even re-printed a great article by the original Tyler Durden. Written at the end of 2009 when, similarly, everyone was expecting higher rates in 2010. Now, just as then, the experts are all wrong: https://www.tfmetalsreport.com/blog/5357/123109-all-over-again

Rates on The Long Bond and the 10-year note began 2014 at 3.92% and 3.00%, respectively. Instead of rising according to script, yields began to fall almost immediately, reaching lows of 3.29% and 2.44% on May 28. A selloff in the bond market then ensued and, once again, the bandwagon was loaded with all sorts of sell-side "analysts" again proclaiming that higher rates were just around the corner. And what has happened since? After peaking at 3.44% and 2.66% a little over a week ago, rates this morning are 3.34% and 2.52%.

And now we're at a bit of a crossroads. Take a look at the chart below. A move through and close above 137-05 in The Long Bond will scare the daylights out of all the freshly-added shorts in the market. A further close above 138 will send price back to 139 and yields back to 2014 lows. All of this while every analyst and pundit continues to trumpet "taper" and the end of QE∞. Rrrrriiiigggghhhhtttt....

This morning, I'm also watching the metals very closely. Though another raid attempt was rebuffed earlier, I still expect some serious attempts to weaken price before the end of the week. Just keep an eye on these ranges. Breaking out one way or the other will tell you all you need to know in the short-term.

Gold is still trapped/stuck in this range:

And though silver is stuck, too, it looks far more impressive with it's series of higher lows. Again, this strength is not surprising as silver is ahead of gold at this moment and I like it A LOT:

Finally...As I mentioned yesterday, today's A2A guest had to cancel and reschedule at the last minute. Therefore, today's A2A ay Noon EDT will feature...ME. If you'd like to join in the fun and ask me anything you'd like, you can still register here: https://attendee.gotowebinar.com/register/1194463612257214210

I don't plan to make this a long call as the US-Germany game begins at roughly the same time. I will, however, record and post the call for your listening enjoyment later today.

TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  43 Comments

CPE
Jun 26, 2014 - 11:28am

Get to work

Mr. Fellon

realitybiter
Jun 26, 2014 - 11:40am

Turd Equities in the great

Turd Equities in the great reset? Where to? 1:1 Dow:gold? Lots a debt supports GDP me thinks

Guy
Jun 26, 2014 - 11:43am

Thurd!

Thurd!

Patriot Family
Jun 26, 2014 - 11:59am

Excellent.

I am going to share this with a key family member who is just now starting to open their eyes. We had a healthy discussion recently on interest rate "management" and why rates cannot be allowed to rise in an uncontrolled manner. My take on it is when interest rates spike and begin their upward climb, it's one of the more serious signs that control over the markets has been lost. Edited to add: Or perhaps a sign that more control is being exerted to thwart inflation. Either way, interest rates have been suppressed to enable a huge supply of cheap money, we are now backed into a corner, and any significant rise will have serious impacts on our economy and ability to service national debt.

dziprick
Jun 26, 2014 - 12:00pm

Official QE will end,

Janet said so. Belgium or somebody else will pick up the slack. Or they will just do it and not report it. I have no faith what so ever in the 'reported' facts. The game will go on until it cannot go on any longer. Only once market forces overwhelm the manipulation will this end. And it will end fast. The only problem is this could go on for a long long time. I never would have thought Bama would have made it out of first term. Now I would not be supervised if Hillary gets through her first term.

I have tried to talk to friends and family for years. They are now all sure I am crazy. Someday people will get what they deserve. At least my call to buy gold back in 1998 is still doing well.

;-(

ArtL
Jun 26, 2014 - 12:17pm

GSR starting to drop

A few days ago GSR was over 65. Now a little over 62.

Barfly
Jun 26, 2014 - 12:18pm

A long reply

I was going to write a long reply to this piece and talk about how brilliant it was and how an actual negative return on bonds would provide a negative incentive (incentive was the theme of CL's article this morning) for the public to purchase bonds. But then, I realized that with money printing going the way it has and inflation numbers manipulated and redefined, that the public has been getting an real negative rate of return on bonds for many years now and still buys them. I guess people are that stupid.

tyberious
Jun 26, 2014 - 12:33pm

Bix

A while back I wrote an article called "$7,000/oz Silver and ONE BANK...Maybe TWO". In it I outlined how the silver manipulation con worked and extrapolated what would happen to the price of silver when the manipulation ended. You can find the article on the Road to Roota website here:

$7,000/oz Silver and ONE BANK...maybe TWO!

https://www.roadtoroota.com/public/94.cfm

The question many people are wondering today is "Is $7,000/oz silver possible after all the maneuvering of the derivative position by JPM and Citibank?"

It's good question and one that, based on the OCC numbers, $7,000/oz silver might not seem achievable. Clearly JPM and Citi have pared down their derivative position as reported by the OCC:

https://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq413.pdf

Changes as of 1/1/14 since 4/1/13:

JP Morgan: $19.6B --> $15.1B (-23%)

Citibank: $11.8B --> $3.4B (-71%)

Combined (-41%)

Interesting but these numbers can be deceiving. Yes, the silver derivative exposure of the two largest US silver market riggers has dropped significantly but it really doesn't tell the whole story. Knowing that the price of silver has dropped 29% since April 2013 you can see that the two largest US Bank silver derivative holders have actually only decreased their derivative position by 12% based on the number of silver derivative ounces held.

It's all kind of confusing as related to what is really going on as the OCC reports only "Other Precious Metals" which can include Platinum, Palladium and others but the understanding in the market is that the majority of this number is in Silver.

One more thing. The banking cabal uses derivatives to SET and STEER the price of silver by trading derivatives (paper silver) back and forth with each other. That is how the game is played. The derivative con is a game where the large banks hold all the cards...literally...meaning nobody else is playing the other end of the paper.

So although we may think that a diminishing silver derivative positions is a good sign that the game is ending, the derivative market is not where the PRICE of silver will be set free.

That will come when the LAST ounce of physical silver is bid on with no sellers at the other end.

One final physical silver order may send us to our $7,000/oz in a silver buying panic.

May the Road you choose be the Right Road.

Bix Weir

unwired
Jun 26, 2014 - 12:36pm

Its coming to bankers as well

Looks like wars fomented in countries around the world is not without costs.

Its going to be coming to your your favorite banker's back yard... in spades.....

https://www.zerohedge.com/news/2014-06-26/head-fourth-largest-albanian-b...

https://www.zerohedge.com/news/2014-06-26/barclays-crashes-18-month-lows

https://www.zerohedge.com/news/2014-06-26/barclays-dark-pool-goes-dark-a...

Jim Grant said it best on US Sovereign debt and negative interest rates....

US Treasuries... Return free Risk.

erewenguy
Jun 26, 2014 - 12:48pm

Been watching bond funds

Been watching bond funds also. Look stable and rising from Jan, around the same time as gold double bottomed.

edit: Oh, and GO COPPER

that is all

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Key Economic Events Week of 10/21

10/22 10:00 ET Existing home sales
10/24 8:30 ET Durable Goods
10/24 9:45 ET Markit flash PMIs
10/24 10:00 ET New home sales
10/25 10:00 ET Consumer Sentiment

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
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10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
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10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
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10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
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Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
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9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
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9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
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9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
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9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
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8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

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