Tag: 30 Year Treasury Bonds

Which Way Will The Fed Blow?

Posted on by George Yacik

Let’s see if I have this straight. For the past dozen years or so, dating back to the 2008 financial crisis, the Federal Reserve and other major central banks have been trying to raise inflation and thereby generate economic growth. (I’ve never quite understood that thinking; I always thought economic growth generated inflation, not the other way around. But that’s just me.)

So now it finally appears that inflation is about to rear its head, or so the bond market thinks, on the prospects of a nascent economic boom fueled by pent-up demand, fiscal stimulus, a decline in Covid-19 cases, and a vast rollout of vaccines. And what is the market’s reaction? Total panic. Sell bonds and tech stocks that have soared during the pandemic. And beg Jerome Powell and the Fed to save them from losses once again.

Let’s see which Powell responds—the one who has told us over and over again that the Fed will be “patient” and be pleased to let inflation run hotter and longer if it means boosting the employment market; or the one who repeatedly rides to the rescue whenever investors start to lose money and beg for relief.

On the surface, it should be the first one. Over the past month or so, bond yields have risen sharply on fears of rising inflation. Rather than a cause for worry, this should please Powell and the rest of the Fed. After all, they’ve been preaching for months that this is what they want, so this should come as no surprise to anyone. Plus, it’s a good thing – rising rates signal economic growth. Yet, the market’s reaction is shock and dismay. Continue reading "Which Way Will The Fed Blow?" →

Gold Miners And Inflation

Posted on by Gary Tanashian

I think the case is closed, or it should be closed. But with firmly ingrained perceptions passed down from one generation of inflationist gold bugs to the next, you never know. Remember the old dismissive “gold is silver is copper is tin is oil is hogs” line from the 2003-2008 time frame? Probably not, but I remember it because it was me saying it against an army of inflationist commodity and resources bulls advising to buy gold, buy silver, buy oil… buy resources of all kinds to protect yourself from the evils of inflation!

As an interlude, here is a pleasant interaction I had with a reader (actually, the interaction was his in a comment to an article of mine, but you get the drift) during the 2016 gold sector launch that ultimately proved to be ill-fated by mid-year because… inflation.

I’m sick of internet d******s and the lying media and govt trying to tell me there’s no inflation! Inflation in the US is VERY HIGH. Its currently 8.3%, and has averaged 9.5% over the past 7 years.

Dude, the article was about why gold stocks do not benefit from inflation and why at that time the backdrop was positive (again, it degraded badly later in the year as inflation reared its head). Of course, there is inflation, all along the Continuum of deflationary macro signaling against which they routinely spray the stuff out of fire hoses, like now for example.

Without the secular decline in Treasury bond yields and complete abdication of the mythical Bond market Inflation Vigilantes, the decades-long inflationary regime would not be possible. Jerome Powell was unimaginably hawkish during the market correction of late 2018. The herd could not understand why, but we could. Inflation signals were getting out of hand as the yield spent a couple of months above the Continuum’s limiter (monthly EMA 100).

30 year bond yield

But sure enough, that got fixed as we suspected it would as the Continuum got hammered down since then into today’s deflationary doldrums. The Continuum has reloaded the inflation gun yet again as yields have tanked and bonds have bulled ever since. Continue reading "Gold Miners And Inflation" →

Are Bonds Still Relevant?

Posted on by George Yacik

Do bonds have a place anymore in your portfolio in the new Federal Reserve paradigm?

The Fed has a long history of creating asset bubbles, then later – sometimes years later – letting the air out of the balloon through monetary policy or regulatory change, leaving investors licking their wounds.

The most recent and most dramatic bubble inflation and subsequent deflation, of course, occurred in the first decade of this millennium. Through a policy of low-interest rates, the Fed largely encouraged American consumers to borrow heavily against their homes, while its laissez-faire regulation of the banks it’s supposed to monitor allowed these same consumers to borrow whether or not they had the wherewithal to pay the loans back.

We all know what happened when the Fed suddenly reversed course and raised interest rates and, perhaps more importantly, required banks to make their customers actually prove that they were good credit risks (imagine that?). We’re still feeling the fallout more than 10 years later, as millions of people defaulted on their loans because they couldn’t borrow any more money.

Now we have a similar story, only with stocks and bonds, but the Fed has taken a different attitude. It’s showing no inclination to prick the bubble it has created in financial assets through historically low-interest rates for a historically long period of time and through quantitative easing, i.e., attempting to corner the market on U.S. Treasury and mortgage-backed securities basically.

Yields on long-term government securities are now at their all-time lows, mortgage rates are at or near their all-time lows, while stocks are near their all-time highs even after this week’s coronavirus-inspired panic selloff. Yet the Fed has not responded as it has in the past, by letting some air out of the bubble, Continue reading "Are Bonds Still Relevant?" →

The Bond Yield Continuum And Gold

Posted on by Gary Tanashian

Have you heard the news? US Treasury bonds are skyrocketing as it turns out there is no inflation amid a global central bank NIRP-a-thon and race to the currency bottom. Going the other way, our 30yr Treasury yield Continuum is burrowing southward.

If you check out yesterday’s post you’ll see proof that the 2018 NFTRH view that people should tune out the bond experts instructing BOND BEAR MARKET!! was 100% on target.

But today the din is coming from the opposite pole. Everywhere you look on the financial websites it’s now about tanking yields, decelerating growth, trade war damage, and deflation. Here is the 30-year bond yield (TYX), which is front and center in this hysteria (click the charts below for the clearest view). That is one impulsive looking drop.

30 year bond yield

But just as we warned that the precious metals move was a “launch” (not a blow-off as some were calling it) in June because it was at the beginning rather than the end of an extended move, we note that TYX is impulsively dropping into a potential climax. Everybody is on the opposite side of the boat they were on in H2 2018. That would be the BOND BEAR MARKET!! side of the boat with experts Gross, Gundlach, and company. Now amidst the current Armageddon (the SPX is after all down a whole 4% from its all-time high, he said sarcastically) backdrop, it’s all BOND BULL MARKET!! all the time.

Wash…

Rinse…

Repeat… Continue reading "The Bond Yield Continuum And Gold" →

Deflationary Straw Man

Posted on by The INO.com Team

No matter the debates over inflation vs. deflation, increasing employment vs. sound monetary policy or systemic health vs. fragility (and whatever else is flying around in Jackson Hole this week), the CPI marches onward and upward.  That is the system and it is predicated on creating enough money out of thin air while inflation signals are (somehow) held at bay.

The Straw Man* in this argument lives in the idea that inflation is not always destructive, that inflation can be used for good and honed, massaged and targeted just right to achieve positive ends to defeat the curse of deflation that is surely just around the next corner.  Currently, the Straw Man is supported by the reality of the moment, which includes long-term Treasury yields remaining in their long-term secular down trend.

Indeed, right here at this very site was displayed much doubt about the promotion having to do with the “Great Rotation” out of bonds and into stocks (i.e. that the yield would break the red dotted EMA 100 this time).  We noted it right at that last red arrow on the Continuum© below.  Now, with commodity indexes right at critical support and precious metals not far from their own, the time is now if a match is going to be put to that dry old Straw Man and silver is going to out perform gold, inflation expectations barometers (TIPS vs. unprotected T bonds) are going to turn up and the Continuum is going to find support.

 

tyx

People argue over inflation’s effects and the expectations thereof but the CPI, which is the ultimate measure of inflation’s lagging effects, has never stopped to take a breather.  2008′s liquidation of the system?  Child’s play.  Inflation, which is what the Fed has been hysterically promoting since 2007, will always manifest in rising prices somewhere.  As luck would have it, this time it is manifesting in the stock market to a greater degree than the CPI.  ‘All good!’ think our policy makers if the right prices are rising. Continue reading "Deflationary Straw Man" →