Some of the work Mark Hulbert does is nothing more than telling us what the gurus in the universe he follows are thinking individually and, more frequently, in the aggregate. But of late, he also has been doing some far more interesting analysis in the “Yale Hirsch” mode – and the results are not satisfying if you are a bull.

The bullish case seems to rest on two platforms: (1) August was really bad therefore September should be good in reaction to that, and (2) “Everyone” now expects the current crop of politicos to suffer major setbacks in November and, since the market is a predictive mechanism, investors are positioning themselves today for what they believe will be wonderful news post-November (like an extension of the current tax rates and a reduction in pork-barrel spending by irresponsible pols.)

The Dow rallied more than 300 points the first two days of September so, making the usual straight-line assumption, bulls believe that today is the day to get invested, Hmmm. Let’s examine each of the above platforms in turn.

Quotable
“Jobs are like a light switch for the market. Upside surprise — all is bright and risk is on. Bad numbers — risk is off and we’re back in the dark.” – Dealer at an Australian Bank

….read more Read MoreHERE

Analysis from one Wall Street strategist shows that the pace of money flowing into bonds is faster at this stage than the infamous dotcom bubble of the late 1990s. And that’s not necessarily bad news for those Treasury investors.

Almost two years into the bond flight, about $550 billion has poured into U.S. bond mutual funds and exchange-traded funds, according to BNYConvergEx Group Chief Market Strategist Nicholas Colas. Using inflation-adjusted figures, investors had put $499 billion at this same stage of the Internet bubble. Colas selected December 1996, the month of Alan Greenspan’s “irrational exuberance” speech, as the estimated start of the bubble in equities. For bonds, he uses the collapse of Bear Stearns in March 2008.

“We all know bubbles can last longer than anyone thinks possible, and the money flows give us a sense just how much more cash may be waiting in the wings,” said Colas, in a note to clients today. “In total, U.S. equity stock funds logged some $840 billion in new capital from Greenie’s warning to the peak of the NASDAQ, and over $1 trillion before money actually stopped flowing into stocks. So that $550 billion in new bond fund money may have some more company soon, if the 1990s period is any guide.”

Government bonds will have their best month in three years this August as prices surged and yields fell. The 2-year Treasury yield hit a record low this month of below a half percent and the 10-year yield touched a 19-month low, illustrating just how much aversion to riskier asset classes there is right now.

“Out of everything that could be a bubble, bonds could be the one that lasts the longest,” said Guy Adami, managing director for Drakon Capital and a ‘Fast Money’ trader. “Japan had a bond bubble for 20 years.”

Treasurys got a boost this month after the Federal Reserve began using money from its maturing mortgage portfolio to purchase Treasuries, a move which further spooked the equity markets about just how bad the economy must be. The central bank has not restarted a formal second quantitative easing program of Treasury purchases using new money, however.

The rate strategy team from RBS called for a correction in the bond bull market yesterday, citing how overcrowded the trade has become and Fed Chief Bernanke’s failure on Friday to explicitly say from his Jackson Hole, Wyoming retreat that round two of quantitative easing is definitely in the cards.

Treasurys have been “overbought for weeks and in dire need of a ‘long squeeze’,” said Bill O’Donnell in a note to RBS clients.

Corrections are indeed a hallmark of any bull or bubble. The bigger question is, will investors see the same magnitude of wealth destroyed as they did from buying and holding tech stocks into 2000?

Not if they hold these bonds to maturity and the U.S. can still pay its bills they won’t. “Bond investors in the current environment can at least retort that they will, eventually, get all their money back,” said BNY’s Colas.

Article via oyetimes.com