The Bond Implosion Continues
Is the bond market implosion the next black swan event that everyone is ignoring?
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The Bond Implosion Continues
Is the bond market implosion the next black swan event that everyone is ignoring?
Like our new Facebook page to stay current on all things Smart Money Tracker
So why is SM yawning at this?
At present it is good for SM because massive amount of money is being taken out of the bond market and a part of it is being directed (invested?) towards stocks in the hope that economy WILL recover.
Could you explain to us how could massive amount of money be taken out of the bond market ? Suppose that I have $1000 bond and I want to sell it, someone else will have to pay me the exact amount that I get (plus or minus possible commission and fees). For whatever amount of money the sellers take out of the bond market, the buyers will have to put the money into the bond market. If the commissions and fees are neglected, it seems to me that there is no net flow into or out of the the bond market. The price of a security moves up when the buyers are more eager to hold it than the sellers.
If the price of the bond is falling then the value of the market is decreasing. Bonds have already lost trillions in value.
If you bought the bond for $1000 but sold it for $900 then the bond lost 10%.
The US 30 year bond market has lost 16% of its value over the last 6 months.
Good grief. We need bond schooling around here.
Easy Al, An interesting point of view. Isn’t it? Thanks.
But, isn’t what you say true that for everything be it arts, stocks or anything else for that matter.? In fact bonds are the only investment which is truly liquid. That is why all the big money is in bonds and they usually stagger it. Treasuries can be sold back to those banks which are the agents of the government, albeit at the market value. And, that is at a loss now. More the seller, lower will be the price of bonds and higher the interest rates. And, it is a vicious cycle.
That is what Gary meant by a “bubble”.
Treasuries are auctioned very often, weekly or even more often sometimes. Similarly, treasuries mature all the time. If one does not like the prospects, one does not have to role over the investment. and opt out for cash.
Such a luxury is only available in bond investments. No such luxury is accorded to investors in stocks, arts, real estate etc. Though recently some companies have been buying their own share as a choice. But, bonds are different that they expire.
Finally, a basic principle of investing. Nothing falls in value unless there are more sellers than buyers.
I had already tried to ask you what you thought about this subject, I now try again 🙂
Would you take seriously the hypothesis that PM stocks could be in a bull market(yet short in time) and gold not?
The baby bull was in PM stocks and not in gold,could this discrepancy go on for another upleg?
I don’t think I’ve ever seen gold stocks diverge from the price of gold for very long.
From ’92 to ’96 gold barely moved yet PM stocks experienced one of their strongest bull market.
Agreed. The yields broke resistance and now headed to very long term (~20-30 year resistance)..
At that point, I’m seriously considering loading up in the 401k.. For the last 30 years (if memory) serves, it has not broken this long term resistance.
Good risk/reward if you ask me..
The rates CANNOT be allowed to increase. “They will have to do something about it otherwise the “economy” will force them to take an action. At this point PMs look good.
vin, look at charts and tell that interest rates can’t that go lower! Its tagged a lower moving average several times in the past..
bginvestor, I am not a guru, and certainly not that good at reading charts or any mambo jumbo for that matter. Just curious: Which chart are you referring to?
My concern is macroscopic. In an economy that has more or less 100 trillion dollars debt, higher rates will be disastrous. 10 years rates have gone from 1.35% to 2.60%, almost double. If and when they show up in the economy, they will increase interest payments by more than 1 trillion dollars. The present “economy” is based on debt and debt alone. It cannot tolerate a couple of percent interest rates increase.
Here is the interesting part, “They” are between a rock and a hard place. If they don’t increase the rates then inflation seems to gain ground. And, if they do, they will kill the economy.
For me, I’m not using decaying bonds as a timing indicator; it can take months before Gold turns.. at that point, the price of gold ETF’s can be much lower than now..
I am betting that the PMs will recover at this point and then collapse if the yields refuse to come down. I have been buying jnug. So, far I am losing.
dude, its about JDST on resistance at this point..
Gary, I like the change in your tone “….except maybe gold”
Gary, it will not be good for gold UNLESS “They” try to stop the interest rate increase by introducing massive QE hence inciting inflation.
However, the debt shrinking WILL enhance the intrinsic value of gold. What does that mean? It means that everything (except for the paper currency) will become cheaper in terms of gold.
It will NOT be good for speculators like the ones on this forum. It will be good only for those who own really gold. And, guess who owns the real gold?
check this out..
Omg. This Gary is not giving up. Still trying to paint gold as a possible good. I think he should just stop talking about it. This is like 2013, where he was really wrong big time.
Gold and miners have broke their last line of defense. Xau too. Remember, they are very technical instruments. When HS is broken, they proceed to target. Hui, min $140. More likely $120!!!!. This is on top of many other indicators. Cot, trendline etc.
Gold is going down – the speed with which it is going down says a lot about what Mr. Market wants this commodity to re-price it to.
Here is an observation which Gary ignores it and wants to draw long term charts but the recent correlation between gold price and bond yields is tight….all it says: interest rates are normalizing and the price of gold is being adjusted to this reality.
Stockpick, If interest rates do normalize then you are 100% correct. Gold will go down a lot, 800-900 range?
But, can that really happen under the present conditions of debt? If that (normalizing) of yield does happen, we need to worry about more than gold. I will bet you a cappuccino that that won’t happen.
In other words they will have to bring another QE.
It is hard to believe that there has been a bond bubble and that there is an incoming implosion.
The bond business has been run very smoothly going up to reflect lower interest rates.
Now it is reversing and will be also a smooth run. The bond system is more fundamental and the US is not in chaos.
Most importantly, we cannot afford higher interest rates, simply because we cannot pay more interest on the 66 trillion US debt. Every 1% up in interest rates has tremendous consequences now.
The bond market bottoms every three years and this is all that it is. Gary is now resorting to black swan events, has terminated his real-time trading portfolio, ridiculed members for screaming that stops should be used but now that members JNUG positions have gone from $23 to $4, he is preaching stops. It is getting a bit whacky at SMT.
I hope SMT can get back to basics. Gary seems like a good guy but things are really muddled right now having left many subs, especially inexperienced subs, hanging.
When the market corrects, bonds will do just fine.
I retract my statements. Gary is stepping up and reinstating the model portfolio … that’s what a man with character does … recognizes a mistake and takes steps to correct it.
No one is mentioning the deteriorating situation with Russia and China. Boys and girls. Gold will fly if these two countries continue to go against US views. TRUMP is an accident waiting to happen. With two Twitter messages he has destroyed 40 years of detente with China. Get ready for more tension and new actions by both Russia and China to try to destabilize a muddled US political landscape. The US is in major uncertainty and you dont see it?? Get ready for oil and gold going up!!
Gary, go the TNX which is the ten year rate and look at a ten year chart (to compare with your ten year/ten year bond price chart). And what you see there is what looks like a pretty obvious double bottom on rates spanning the past 4 years since 2012.
The only thing is that I am not sure that is a double bottom at all because the second bottom dipped a little below the first. We might just be seeing the set-up for bonds to eventually go higher therefore and rates to go lower (even negative).
In any case I don’t know why it would be good for gold if bonds fell. Since the start of this year they have been moving together in lockstep. A one year chart of the $UST even looks like the gold chart they are so close. And what that is telling us is that gold will fall WITH bonds when the time comes as this new relationship has already established.
That is very bad news for the gold bugs if the bond bubble has burst. Its death for this sector actually. So be careful drawing conclusions. Gold may indeed decouple from the Yen but it also looks like it has bedded with a new friend in the Treasury market and we need to stay apprised of this strange relationship.
Check the charts for yourself if you doubt me.
Yes, you are 100% correct.
Until you aren’t.
No, I am 100% correct. That’s all. And you know what? Gold is going to crater as rates slowly rise and that’s what the new correlation warns about. Some of you gold bugs make no sense at all. You are your own worst enemies most of the time. Just look at the facts before sinking too much money in a buy and hold position and stop trying to shoot the messenger because the words conflict with your religion.
Sounds like you have a religion, too.
It has nothing to do with me Galaxy. I just go by the facts. For example, we are at 96% bears in gold sentiment now and that kind of extreme just begs for a rally of some kind. So I can balance that kind of information against the data that says we are in a secular bear market for gold and speculate against both sides without having to join any clubs or get sensitive when people don’t agree with my point of view. What’s to be touchy about? Facts are facts.
Ped.i.cure, G&S are in bull markets. The GSR is in a bear market. Those are the facts. 🙌
You have to remember that data, especially the interpretation of data, can be misleading.
Well said, and you’re so right. For example, take the recent Presidential Election. Data from the polls indicated that Clinton would win the election. We all know how that turned out.
Those are just empty comments. Any reader can see that. Neither one of you posted any evidence to prove “gold and silver are in bull markets”. But all I need to do to be correct is point at the objective fact that both have crashed since summer.
I have been in these markets for decades and seen you types come and go. You are all the same. Most of the time its just agenda’s running the comments. Efforts to discredit real analysts and to confuse newcomers is where your energy goes.
Nothing changes. I would warn all inexperienced gold traders to carefully parse the comments of those like yourselves who have no interest in getting at the facts but rather are instead prepared to spend a great deal of time discrediting commentary that is not favourable for metals.
And I would add that readers need to understand that sites like this are often populated by gold brokers, dealers, trapped gold investors, industry people and those with economic interests in metals and are biased in favour of gold regardless of what metals are doing in the real world.
So the debates on metals are very often neither rational or serious because some of those making claims in support of pm’s cannot be persuaded no matter what facts are written.
It is not in their interests to be honest where gold investing is concerned.
Pedestrian (not so funny guy) here is a compliment from a “funny” guy. You are right for a change.
Correlations work until they don’t.
That too is an empty comment. Correlations sometimes run for decades. This particular gold/bond correlation happens to be a year old already so its not a brief relationship like some summer fling with a cute girl at camp. I would advise you to be careful investing in gold as long as this correlation holds. Traditionally, rising interest rates have been negative for precious metals and it looks like this time will be no different. There was only one notable period in recent history where rates and gold rose together. You had best research it Gary and start to understand why or you will end up losing a lot of money in this sector because the probabilities favour a gold bust if the bond bubble is at an end.
Thanks for the insights. I also have been looking at the high level of correlation between gold, yen and TIP.
In view of the recent action it seems to me that gold and TIPS/bonds have started to decoupled.
The yen is reaching support and the USD, YEN, and TIPS are far from the averages. So some relief is next door for gold. We may still go to $1100 for gold but relief is imminent, I believe.
Anytime Goild. Glad to be of assistance to the open minded correspondents here.
This black swan label gets thrown around way too much. A black swan is something very rarely seen and unexplained, out of nowhere. This was seen and expected by some for a long time. Opposite of a black swan.
The BLACK SWAN EVENT AS DEFINED BY MIKE TYSON:
“EVERYONE HAS A PLAN – UNTIL THEY ARE PUNCHED IN THE FACE”.
The crash in bonds is not showing any sign of slowing down. The next Black Swan may be brewing in the bond market, and it seems everyone is ignoring the warning signs..
Could be – or maybe not. An alternative POV:
1) bond yields have been unusually low and thus are snapping back to “more normal” levels. Normalized 10-year yield could get to 6% without affecting stocks (and their “earnings yield”). I think Buffett was interviewed recently saying something to the effect of “wake me up when the 10-year gets to 4%”. (ok – not exactly like that … but he threw out 4% as a number that he thought wouldn’t affect stocks.)
“So bonds are ‘crashing’ and stocks are going up. Some say that this can’t continue; you can’t have stocks and bonds go in opposite directions for long before something snaps. Well, this is true to some extent. But it sort of depends on which way the ‘snap’ is happening. What if bonds were way overvalued versus stocks? In that case, bonds can tank a lot before stocks have to correct.”
2) bond yields are also not rising due to rising inflation expectations – so says the falling price of spot gold (and rising US dollar).
Gold was around ~$1300 per oz just before the election. It’s now down to $1130 per oz (a drop of around 14%). If inflation concerns were rising, gold would be climbing, not falling. In fact gold has been falling almost every day even as bond yields climb day after day. I think that gold is telling you more about the US dollar (i.e, since the election, there is increasing demand for US dollars and US dollar assets).
Perhaps Mr. Market is getting ahead of himself but these are positive signs IMHO.
I agree except for the fact that the PM market is manipulated with dumping of billions in notational gold. I see this routinely reported on zerohedge.com.
Stockpick if interest rates go to 6% (10 years), we will see something America has never seen before (& I mean never). My guess is they will act as soon as the interest rates exceed 3% , or could be even earlier.
So, far these rate increases have been theoretical in the sense they have had very little effect on the borrowed money in the economy. The only casualty so far has been the market value of the bonds. It will take some time to trickle down to the real economy. I doubt that “they” will let it happen. American economy is now based on the foundations of debt. These foundations will not be shaken if “they” can help.
Good point…With the recent strength in the dollar, the ability to essentially let the dollar slide with some other alphabet soup style QE to get rates under control can be contemplated. I suspect after the New Year (which will be the hangover phase for the “animal spirits” lunacy that has overtaken the markets since the election), we will hear “a lot of concern” for the bond markets and what could/should be done about it. Heck, it wasn’t even 6 months ago that the herd rushed into bonds during Brexit as some safe haven and stocks/bonds were tightly correlated throughout the entire first half of 2016.
What if bonds aren’t anticipating inflation, or better economic times ahead, or snapping back to normal?
What if this is simply just the next bubble popping?
And when bubbles pop bad things happen.
Gary, Point taken. But, my hypothesis still stands. If interest rates go up substantially (for whatever reasons), in nominal terms gold WILL be a loser along with everything else. Second, “they” will do their best to avoid “bad things”.
Gary, Remember that this is not 1980 or 1940. It is a debt based economy. Collapse of depth? Reminds me of the Chinese proverb about interesting time. And yes interesting time it is.
No way. “They” will flood the economy with another substantial QE. Just watch.
Something to think about:
In spite of all the selections from Goldman Sachs, securities lawyer and market analyst Avery Goodman writes today, the Trump administration under construction looks awfully friendly to the idea of restoring a gold standard,
The “Gold Reserve Act”, passed by Congress in 1934, requires the consent of the President before the Secretary of the Treasury can authorize tapping into America’s gold reserve. That’s what the meeting with President Obama and the CEOs of the biggest gold dealing banks, on April 11, 2013, was all about. It took place one day before the biggest attack on gold prices ever undertaken. The fact that the meeting took place at all, however, indicates that even left-wing Barack Obama was questioning the wisdom of raiding America’s gold.
Going forward, the unplugged gap between supply and demand will be closed by the real market, not from further donations from the American treasury. Prices will rise once the banksters see the prospective cutoff from access to America’s gold reserves come too close for comfort. At that point, which will probably come in late December to early January, they will spin off whatever small short position they still have left, at any price they must pay to do it, and the upward movement will begin in earnest.
Thanks GMoney. I wish you are right. Can you provide any link to support your statement?
In my views, it will be a huge step in the right direction but the short term consequences will be a disaster. At present there is a significant gap. It will take a substantial gold price hike to reach there. And, that will be only a part consequence. Some currencies will be wiped out while other will rise substantially affecting their export capabilities. Temporarily it will mess up everything. International economy will lose its balance which the CBs are so diligently trying to maintain.
Please do provide us links if you know any. I for one am extremely interested in knowing more.
Here are the links:
Pedestrian and all the other seemingly gold experts, here is a message from the german website “Goldseiten”:
I try to translate to you:
“We are seeing now a Deja-vu of december 2015. While the “Dumb Money” is panicking and selling gold an gold miners, the “Smart Money” is collecting them again at historically cheap market prices. It’s all time the same game – and it will never change.”
Emptyness, if you read my posts you already know I agree that a bounce is coming fairly soon. I don’t see a major directional trend change though even if gold gets back to 1250 since that too should reverse on this current pattern. Your author is just being presumptive in any case. Odds do not favour the idea we are in a new bull market when a rally the size of the one we saw since January retraces this much. That is not to say it is impossible but rather that you are gambling by betting long at this point unless you are prepared to bail out at the next reversal. Fact is, anything could happen. The more important long term charts are already telling us though that we entered a secular bear in 2011 and that it will go on for many more years hence.
In other words Empty, your “smart money, dumb money” article is just the usual come-on to get the bugs buying again but it appears to be based on nothing more than an analog comparison to last years action which is hardly a basis to invest by. I hate reading that kind of junk. Its all emotion-based fluff. Distracting is a better word. You would be wise to ignore that author. The odds of him being right are less than a coin toss. Gambling basically.
Sorry Ped, you are wrong. The author of the article plays the gold bull since the year 2000 were gold was around 280 USD. This bull market is going on, maybe till around 2020.
Anybody can make money in a bull. That is proof of nothing. Show me someone who makes money in a bear and you will get my attention.
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