{"id":21883,"date":"2013-08-27T09:49:05","date_gmt":"2013-08-27T13:49:05","guid":{"rendered":"http:\/\/www.ino.com\/blog\/?p=21883"},"modified":"2013-08-27T09:49:05","modified_gmt":"2013-08-27T13:49:05","slug":"macro-markets-shrug-off-policy-makers-ready-for-a-pivot","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2013\/08\/macro-markets-shrug-off-policy-makers-ready-for-a-pivot\/","title":{"rendered":"Macro Markets Shrug Off Policy Makers, Ready for a Pivot"},"content":{"rendered":"

Once again we present the Treasury 'TICs' data for China and Japan, most recently available through June.\u00a0 It can be argued that these two countries are<\/em> the T bond market, when considering the volume in which they deal and their strategic status as heretofore T bond consumers.<\/p>\n

\"tics\"<\/a><\/p>\n

And now our long-running and most important macro chart, the 'Continuum' in long-term T bond yields; a monthly view of the 30 year yield and its 'limiter' AKA the 100 month exponential moving average (red line).<\/p>\n

\"tyx\"<\/a><\/p>\n

TYX monthly from NFTRH 253<\/p>\n<\/div>\n

We note that China and Japan had started net selling of T bonds in June just as a 'would-be' bottoming pattern became an actual<\/em> bottoming pattern with a breakout through the neckline.\u00a0 The 3 post-breakout months shown on the chart have featured a heavy rotation of Huey, Dooey and Louie in the media jawboning 'QE Taper' ever since.<\/p>\n

Tapering Views Emerge From Fed Speeches (August 8)<\/strong><\/a><\/p>\n

This all started after June, and as the TYX was bottoming, so can we please stop the cartoonish talk about decisions the Fed may or may not decide to make?\u00a0 The chart above told our heroes that it is time to talk 'Taper' and that is what they are doing, despite the backdrop of seemingly non-existent inflation; non-existent that is unless you count the already embedded inflation effects of the past (charts courtesy of SlopeCharts<\/a>).<\/p>\n

\"cpi.labor\"<\/a><\/p>\n

What we actually have is inflation working overtime, but fortuitously manifesting in the 'right' assets rising in response this time around.\u00a0 Once again, here is the S&P 500 doing what it was supposed<\/em> to do and making heroes of policy makers as it rises in lockstep with the expanding Monetary BASE.<\/p>\n

\"spx.base\"<\/a><\/p>\n

We again take this opportunity to note that the S&P 500 is not out of line valuation-wise, with the previous cyclical bull market.\u00a0 In fact, it has not yet reached the valuation per Corporate Profits that it did in the previous cycle.\u00a0 But then, these data points are only valid to people who consider inflation a valid tool to be used in effectively managing an economy.<\/p>\n

\"sp500.earnings\"<\/a><\/p>\n

Government debt (T bonds) has been used to manipulate and engineer the economy.\u00a0 Corporate profits have responded as T bonds were bought and monetized.<\/p>\n

\"debt.base.profits\"<\/a><\/p>\n

But when we review the TICs data and the nearly 4 month trend in T bond yields, we are left with the question of whether or not an 'organic' economy and a healthy stock market are in play or something utterly dependent on more debt and more inflation.<\/p>\n

Bulls who are confident in the market\u2019s origins and in line with heroic and very capable policy makers should be buying the current correction.\u00a0 I assume they are backing up the bravado with action and buying this \u201cnew secular bull market\u201d opportunity.<\/p>\n

Bears who are confident that the macro market\u2019s books have been cooked should realize that these things do not just unwind the moment a few people begin to cotton on to the idea that manipulation never works in a sustainable or healthy way but rather, they should keep an eye on the 30 year yield and its EMA 100 \u2018line in the sand\u2019 as we have called it in the past at important macro turns.<\/p>\n

That chart is a road map.\u00a0 We are going to a yield limit and it is due to bond market supply and demand dynamics.\u00a0 It can be argued that the Fed is in a box and needs a broad market liquidation in order to quiet down the signals.<\/p>\n

The United States benefited from a labor arbitrage and a steadily rising bond market last decade right through 2012.\u00a0 This was in large part compliments of China\u2019s desire to build out its economy and use the chronic debtors in the US (consumer nation) to do it.<\/p>\n

The EMA 100 has limited the yield at every point over the last few decades.\u00a0 The degree to which global markets have been tampered with over the last 2 years calls into question whether or not the yield will finally breakout this<\/em> time.\u00a0 If it breaks out, the US will likely see its \u2018organic\u2019 recovery go right down the tubes.\u00a0 If the yield is once again repelled, we will likely see a rush to T bonds amid a flight to \u2018safety\u2019 and an asset market liquidation.\u00a0 That could fuel a future leg to the current cyclical bull.\u00a0 Could<\/em>, not \u2018would\u2019.<\/p>\n

Big events have tended to happen at and around the EMA 100.\u00a0 The most recent example featured mobs with pitchforks calling for the head of \u201cHelicopter Ben\u201d and Bond King Bill Gross poking him in the eye with a big bet on inflation by shorting T bonds in 2011.\u00a0 That was a big turn from the secondary inflation hysteria after the big one blew out in 2008.<\/p>\n

What will happen this time?\u00a0 Hey look, they have messed with the market\u2019s \u2018organic\u2019 functioning so thoroughly that it is anybody\u2019s guess.\u00a0 The precious metals appear to have spent 2 years recalibrating in preparation for a new phase.\u00a0 The US dollar is still bullish but in danger of losing a technical underpinning (reviewed in NFTRH this week), Europe\u2019s market appears to have higher to go in the near term.\u00a0 Countless other markets and indicators appear to be heading toward pivot points, whether bullish or bearish.<\/p>\n

It is beyond this post\u2019s scope to get into a detailed analysis.\u00a0 We\u2019ll just end by asking readers to doubly question any and all assumptions or overly confident predictions going forward.\u00a0 Especially the ones that stimulate a greed response.\u00a0 Changes are coming and if they coincide with the 30 year yield\u2019s status as they have in the past, they are coming soon.\u00a0 Do the work.<\/p>\n

Biiwii.com<\/a>, Notes From the Rabbit Hole<\/a>, Twitter<\/a>, Free eLetter<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Once again we present the Treasury 'TICs' data for China and Japan, most recently available through June.\u00a0 It can be argued that these two countries are the T bond market, when considering the volume in which they deal and their strategic status as heretofore T bond consumers. 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