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 $15 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

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  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

tyberious · Jun 26, 2014 - 12:54pm

Are Chinese Gold Imports

Are Chinese Gold Imports Really Down This Year?

June 26, 2014GoldMarket ManipulationPrecious MetalsBeijingChinagold imports,Hong Kong

Contradictions do not exist. Whenever you think you are facing a contradiction, check your premises. You will find that one of them is wrong. - Ayn Rand

The answer is, we don’t know. And we don’t know because we can’t know. Reuters ran a story this morning which asserted that China’s gold imports had dropped to a 16-month low in May. But the truth is, we don’t know what China’s total imports in May were.

We do know that the World Gold Council’s 2013 tally of China’s gold imports was egregiously inaccurate: China To WGC: “HUH?” Not only that, according to the general manager of the precious metals department for the State-run Industrial & Commercial Bank of China, the ICBC is not meeting the demand for gold by the market. Hmm…

In fact, it’s been impossible to track China’s total gold imports since late April, when China began to allow gold imports into the mainland through Beijing: China Opens Beijing To Gold Imports.

While Hong Kong publishes monthly reports on the amount of gold supplied to China, mainland China does not release trade data on gold. Prior to this, we could track China’s gold imports from data reported by Hong Kong and the Shanghai Gold Exchange.

The move to make China’s gold import volume opaque is intentional: “The bulk of gold bought by China used to flow through Hong Kong, making its export data a useful proxy for Chinese demand as Beijing treats data about imports of the precious metal as a state secret” (LINK).

I bring this up because I’ve seen several reports and blog commentaries which suggest that China’s demand for gold is declining this year. The conclusion is that the gold is headed for another down-leg.

Seemingly, the current action in the gold market is contradicting the premise that gold is headed lower…If I were U.S. policy-makers, I would be worried about the reasons China has decided to go “cloak and dagger” on their gold imports…

tyberious · Jun 26, 2014 - 1:00pm

War

is the only remaining method of debt creation. There are no willing consumers of debt, so the US government remains the debtor of last resort.

Shame.

Barfly · Jun 26, 2014 - 1:28pm

Pulled the trigger

Just pulled the trigger on the physical order. The three successive pullbacks to higher lows convinced me that the market is probably not going to get pushed lower, even though that's the norm in the past. The chart just looks too strong here. A trend is developing and maybe, just maybe, TPTB have decided to stay out of the way.

The dealer said he has even more stock than he had earlier in the week, with shipments from several foundry's arriving yesterday. They had 200 of the 100oz bars I was interested in, but alas, I couldn't buy them all. So, get busy Turdville, if there are full wholesaler vaults out there, you guys are obviously not buying enough physical!

Barfly · Jun 26, 2014 - 1:29pm

Pulled the trigger

Duplicate. P.S. - My order moved the market up $.02.....

SS121 · Jun 26, 2014 - 1:39pm

Silver

1000 oz silver bar Image & Substance logomoney word

boomstick Barfly · Jun 26, 2014 - 2:06pm

Choice

What's your preferred brand of 100 oz Ag bar?

Barfly boomstick · Jun 26, 2014 - 2:38pm

Re:Choice

NTR Metals. They come in sealed plastic sleeves, and they are accepted at spot in exchange for a cashier's check at any NTR counter anywhere there is one, no questions asked, so long as they are still in the sleeve. With the caviat, of course, that you have an account with them (not available to individuals, only businesses). So, that makes them the most readily convertible to fiat of any silver product I know of in the event the need should suddenly arise. Same applies to 10 oz bars.

Bollocks · Jun 26, 2014 - 2:40pm

"Just pulled the trigger on the physical order"

You shot a prostitute Barfly?

I think that's illegal. Well, it is in London.

Barfly · Jun 26, 2014 - 3:00pm

Icarus

I'm in general agreement with what you say. That is, with the exception of one possible factor. That would be price distortion. Silver, being systematically suppressed and manipulated to the downside for many, many decades, plus the fact that valuation of anything in dollars is like having a ruler made from silly putty, may just revalue staggeringly higher in a short period of time. Just this week, Bloomberg published an article that stated the paper market was $5 Trillion when the physical market was $50 Billion. That would imply a value of $5K per ounce.

So from a historical standpoint, I would agree. No asset in history has ever revalued like that. But, if it did happen, it would be a one time in history event. But, there was a point in history, as well, when atom bombs did not exist. And then they did.

tyberious · Jun 26, 2014 - 3:04pm

Icarus

I post Bix's email update as an info service. But since you brought it up, here's a 3000 x valuation. Gold/Silver Prices Under the Weimar Republic's Inflation Submitted by beardeus on Tue, 12/21/2010 - 19:24 in Economy Stole this from another article/blogger. Quote: "On a closing note, because I forgot last week, I would like to share with everyone just how the price of silver and gold escalated in German Mark terms, through the Weimar experience: Hyperinflation: Wiemar, Germany January 1919 to November 1923 [Expressed in German Marks needed to by an oz. of ag. or au.]" Jan. 1919 Silver 12 Gold 170 May. 1919 Silver 17 Gold 267 Sept. 1919 Silver 31 Gold 499 Jan. 1920 Silver 84 Gold 1,340 May 1920 Silver 60 Gold 966 Sept. 1921 Silver 80 Gold 2,175 Jan. 1922 Silver 249 Gold 3,976 May. 1922 Silver 375 Gold 6,012 Sept. 1922 Silver 1899 Gold 30,381 Jan. 1923 Silver 23,277 Gold 372,447 May. 1923 Silver 44,397 Gold 710,355 June 5, 1923 Silver 80,953 Gold 1,295,256 July 3, 1923 Silver 207,239 Gold 3,315,831 Aug. 7, 1923 Silver 4,273,874 Gold 68,382,000 Sept. 4, 1923 Silver 16,839,937 Gold 269,429,000 Oct. 2, 1923 Silver 414,484,000 Gold 6,631,749,000 Oct. 9, 1923 Silver 1,554,309,000 Gold 24,868,950,000 Oct. 16, 1923 Silver 5,319,567,000 Gold 84,969,072,000 Oct. 23, 1923 Silver 7,253,460,000 Gold 1,160,552,662,000 Oct. 30, 1923 Silver 8,419,200,000 Gold 1,347,070,000,000 Nov. 5, 1923 Silver 54,375,000,000 Gold 8,700,000,000,000 Nov. 13, 1923 Silver 108,750,000,000 Gold 17,400,000,000,000 Nov. 30, 1923 Silver 543,750,000,000 Gold 87,000,000,000,000 https://www.dailypaul.com/152768/gold-silver-prices-under-the-weimar-rep...

Icarus tyberious · Jun 26, 2014 - 3:10pm

BIX and $7000 silver

Respectfully what you're are espousing is pure hokum!

No asset class in the history of humanity has appreciated by 30,000% over a finite time frame....EVER. And you think it's possible for silver to do so? Even tulip mania, the largest recorded bubble in history only increased the price of tulips by 200X before the price collapsed. If silver goes to $7000 it's ONLY because the dollar went to ZERO. It won't buy you more than 5 times what it does today. Yet you insinuate (by failing to discuss inflation) that it will purchase 350X the goods that it does today.

You are doing a great disservice to your readers with this claptrap. Disingenuous to say the least.

At a mere $200 silver, the supply would explode. Many many mines would be rammed into production. Scrap would come pouring out of the system. Silver would be sucked out of the ground measured by grams per ton, not ounces. Recycling would go into orbit. Industrial substitutes would be found.

Cost of production of $20 an ounce. Market price of $7000. A profit margin of 30,000 percent would cause every capital outlay in the world to go into mining silver. Heck I'd mine my back yard for that, and probably make a nice profit. I'm sorry but $7000 silver near today's purchasing power is nowhere in the cards, bubble or no bubble.......at least not in the lifetime of anyone alive today.

Icarus

CPE · Jun 26, 2014 - 3:10pm

Revaluation

I favor Gold over Silver because of the revaluation issues with industrial production. Gold can be revalued in somewhat of a vacuum (not dragging correlations of industrial commodities up with it) whereas Silver's industrial uses preclude this vacuum effect or else the industrial uses must cease, massively reprice or find a new element.

Late Edit: My thoughts are in purchasing power terms, not nominal terms...hence the correlation angles...

tyberious · Jun 26, 2014 - 3:15pm

CPE

Agreed, but silver is much more fun :)

SS121 · Jun 26, 2014 - 3:32pm

Regarding Silver price speculation, actually...

currencies could easily remain in place during "end of Monetary Cycle" skyrocketing metals prices. And with basically the same cheeseburger and gasoline purchasing power.

you've got to understand that THIS TIME the "system" (central markets, charts, exchanges etc.) is what will be dying, not the currencies.

In the past, only individual and regional fiats displaced Silver and Gold.

But let our current silver chart suddenly no longer be the single price reference for all the world's physical Silver transactions and see what happens..

i wouldn't expect it to reach the Deutshce Mark fiat prices shown below...

deutschemarksilver1919-23.gif

But only $7,000 dollars?? if the current almost 0?% of the population that is stacking Silver turns into 50%. ...and the billions of fiats start pouring out of dying equities markets? $7,000 might be about right.

To compare the above chart to today's situation. Imagine that the line on the chart represents PEOPLE who are exiting the system and looking to acquire Silver and Gold. (real transaction prices will be very high)

Think- if Silver just goes to 40 that's a 100% increase. The DJIA wouldn't be able to keep pace with that. And if it did, even life-long 'market' Kool-Aid addicts would know it's a hoax and exit just the same. (All laps of a 200 lap race look basically the same, but on that LAST LAP there is a completely different dynamic. that's the difference.)

And the prices of everyday stuff could actually go down during all of this. The fake markets pump up the price of energy, which increases the production and shipping cost of daily "stuff". (no more central markets=energy dirt cheap)

... so what very easily could happen is basically Hyperinflation ONLY on the Wall St. side of the "markets", and a price Depression for normal "stuff" on the Main St. (real world) side of the "markets".

That would see a LOT of fiats exiting the "system" (Wall St.) and looking for Silver and Gold in the new Free-Market consisting only of 2 people. One person with Silver(Seller) and another person with Fiat papers(Buyer). Would that scenario ever see $7,000.00 per ounce transactions for what would then be the most sought after monetary metal on the planet??

Consider that right now people pay $10,000 $20,000 $50,000 etc for about .1 ounces of gold with a rock (diamond) attached to it. (and diamonds are essentially worthless).

Let's see what happens.

Icarus tyberious · Jun 26, 2014 - 3:36pm

Response to Tyberious

Tyberious writes: "I post Bix's email update as an info service. But since you brought it up, here's a 3000 x valuation."

I would like you to go back and reread my post. It specifically stated that all bets are off if the currency collapses. In the case of Weimar Germany the currency collapsed. So this is an inacurate example. Silver went up 543,750,000 % when referenced to the currency it was measured against. It did not however purchase 543,750,000X more goods! Nor did it purchase even 3000X more!

Icarus

Bollocks · Jun 26, 2014 - 4:08pm

Icarus

Cost of production of $20 an ounce. Market price of $7000.

When the currencies collapse and IF silver reaches 7000 an ounce, the loss of the dollars purchasing power will result in the cost of production sky-rocketing as well. It will not stay at 20 an oz - nowhere near.

And anyway, pricing silver or gold in dollars in such a scenario will be pointless. It's true value as a true store of wealth will be revealed. That's where wealth will be transferred, into real money, so I find all this price-in-dollars stuff pointless and ridiculous.


CPE · Jun 26, 2014 - 4:13pm

RE: Bollocks

You're right on the price-in-dollars stuff!

One FRN is 1/21th of an ounce of Silver

One FRN is 1/1316th of an ounce of Gold

The denominator is the metal, not the FRN, since the denominator is the unit of account and should be money not scrip.

Bollocks · Jun 26, 2014 - 4:25pm

Exactly CPE

"The denominator is the metal, not the FRN"

yes

CPE · Jun 26, 2014 - 4:47pm

Bitcoin

More on the revaluation in a vacuum from my post above. Turd posted a bitcoin vs gold graphic on the other thread. Bitcoin appreciated from $0.01 in 2009 to over $1200 at one point. So in 5 years it went up 12 Million %!

Oil, Copper & Wheat didn't change $ prices with a 12 Million % revaluation in purchasing power for bitcoin owners. In my mind this is what separates gold from silver. Because of the lack of industrial use, revaluation that does not drag correlations of commodities with it can be accomplished. 

So the appreciation in bitcoin was 12 Million % in real terms. Now that's only an example as Bitcoin is NOT what makes the world go round. Gold really is the anchor of all finance, see Exter's pyramid. But the example remains.

The HUGE dervivatives and debt mountain must be exterminated at some point. A revaluation is what the pattern has always been absent a hyperinflation. I don't know the future but I would think a revaluation would be attempted before a hyperinflation if TPTB have their choice since it would better preserve their control.

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