Bonds & Interest Rates

Long Term Treasury Bonds: “Taper This!”

Posted by Gary Tanashian: Notes From The Rabbit Hole

on Thursday, 23 January 2014 23:54

In September I wrote a post where gold made the same wise guy statement, because there is a valid argument that sees the onset of a ‘tapering’ regime as positive for gold.

Today it is the very asset class in the cross hairs of tapering, long term Treasury bonds that is saying ‘Taper this you mofos!’  Amidst all the hysteria about reduced bond purchases by the Fed the TLT fund is holding an important moving average and threatening to turn up.

Click HERE or on Chart for larger view

tlt4

 

It is so cool to think about how utterly enthralled the herd is with policy makers these days (doing a 180° to 2011 or 2009).  As if policy makers were not compelled to start babbling about tapering because long term yields had already bottomed and turned up.  They then rose persistently right to the targets that NFTRH had all along.  Voila, tapering initiated at the last FOMC.

Yields rise = taper jawbones in the media; not taper jawbones in the media = yields rising.

Today if yields do the contrary thing and decline (into an eventual counter cycle) maybe Huey, Dooey and Louie will start jawboning a tapering of the ‘taper’ talk.  Only this time, I would not necessarily expect a resumption of full QE to hurt gold; not if it comes in response to a decelerating economy.  That’s a big detail sitting right in the middle of the analytical equation.

Okay, so the post riffed a little and got off its original message, which would be that T bonds are threatening to put a majority off sides due to their own herd following behavior patterns.  There, now I’m done.

 

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About & ToS

About Biiwii.com

Gary Tanashian of biiwii.com successfully owned and operated a progressive medical component manufacturing company for 21 years, keeping the company’s fundamentals in alignment with global economic realities through various economic cycles.  The natural progression from this experience is an understanding of and appreciation for global macro-economics as it relates to individual markets and sectors.

Along the way, a geek-like interest in technical analysis, a long-time interest in human psychology and various unique macro market ratio indicators were added to the mix, with the result being a financial market newsletter (and dynamic interim updates), Notes From the Rabbit Hole (NFTRH) that combines these attributes to provide a service that is engaged and successful in all market environments by employing risk management first, and opportunity for speculation second.

Primary Influences:

 

  • Former US GAO chief Robert Walker
  • Robert Prechter’s Conquer the Crash
  • Doug Noland’s Credit Bubble Bulletin
  • Reminiscences of a Stock Operator

 

 

West Texas Intermediate crude options volatility rose as futures climbed a fourth straight day to the highest level this year.

Implied volatility for at-the-money March WTI options, a measure of expected futures movements and a key gauge of value, was 18.2 percent at 4:35 p.m. on the New York Mercantile Exchange, up from 17.64 percent yesterday.

Volatility for puts protecting against a 10 percent decline in futures rose to 23.22 percent from 22.45 percent. Calls protecting against a 10 percent gain advanced to 19.77 percent from 19.16 percent.

WTI for March delivery advanced 59 cents, or 0.6 percent, to $97.32 a barrel on the Nymex. Prices have jumped 3.1 percent in four days of increases.

“There’s an even balance between people who think the market can go higher and go lower and you have about an equal amount of bets on both sides of the strike price,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

Calls accounted for 51 percent of electronic trading as of 4:59 p.m. The most active options were March $100 calls, which rose 16 cents to 69 cents a barrel on volume of 5,747 lots. Second-most active were March $98 calls, up 26 cents to $1.39 on 4,067 contracts.

In the previous session, puts accounted for 51 percent of trading volume of 149,086. March $95 puts slipped 72 cents to $1.02 a barrel on 8,992 lots. March $100 calls increased 27 cents to 53 cents on volume of 7,330 contracts.

Open interest was highest for June $80 puts with 35,845 contracts. Next were December 2015 $120 calls with 27,648 lots and June $85 puts with 26,815.

The exchange distributes real-time data for electronic trading and releases information the next business day on open-outcry volume, where the bulk of options activity occurs.

To contact the reporter on this story: Barbara Powell in Houston atbpowell4@bloomberg.net

To contact the editor responsible for this story: Dan Stets atdstets@bloomberg.net

China’s Shanghai Composite Index will probably bottom out within days and begin to rebound, said Tom DeMark, the developer of market-timing indicators who predicted the measure’s rally from a four-year low in June.

The gauge may slip to as low as 1,952, or 4.4 percent below yesterday’s close, and then rally “sharply,” DeMark wrote in an e-mailed response to questions fromBloomberg News yesterday. The Shanghai Composite, which touched an intraday low of 1,984.82 on Jan. 20, has lost 3.5 percent this year.

The index “is in a bottom zone,” wrote DeMark, the founder of DeMark Analytics LLC in Scottsdale, Arizona, who has spent more than 40 years developing indicators to identify market turning points. “We have now turned constructive.”

….more HERE

Emerging or Sub-merging Markets? A trade idea

Posted by Jack Crooks - Currency Currents

on Thursday, 23 January 2014 22:48

Quotable

“The simplification of anything is always sensational.”

Gilbert K. Chesterton

Please click here to view the PDF version

 

Commentary & Analysis

Emerging or Sub-merging Markets? A trade idea

To be altogether comfortable with shorting the emerging markets I think you have to also be comfortable with our (and others) US dollar bull market call.  If you are a newsletter guru devotee, you probably know the story by now—the dollar is going to crash.  These siren calls of dollar doom have been with us for many years.  At times the calls grow loud.  But at all times they have been wrong.  The dollar game isn’t about finding all the things wrong with the United States—there is a laundry list there I know.  It isn’t about trumping up scenarios about “currency wars” that never happened and going on TV or holding seminars to promote said illusions.  But, it is about understanding what is happening on a global macro basis across the global economy.  Many of the rationales that may power the dollar higher are the same that seem dangerous for emerging markets.

Here are the down and dirty rationales for shorting emerging markets:

US dollar credit is draining off the global economy—dollar bullish long term:

The improving US current account deficit means fewer dollars are sent out to lubricate other markets. This is especially dangerous for countries which lack capital market depth and are more highly dependent on bank and trade flow financing—that defines emerging markets for the most part. An interesting coincidence with the US Current Account and path of the US dollar in the chart below:

012114 Current Account 

The United States’ growing energy dominance represents a powerful magnet for long-term investment flows into the United States.  Energy costs for companies operating inside the US (and Canada) is significantly lower than for those in Europe, Japan, or China (and emerging markets); that represents a significant competitive advantage.

The Fed’s zero interest rate policy continues to lay waste to the real economy here and abroad, further exacerbating US consumer demand for foreign goods.  The saving grace for the US is depth of consumer market locally relative to emerging markets.  Thus, relative growth in the US should continue to improve against most EM countries.

US companies are bringing manufacturing jobs back to US shores as technology integration in manufacturing neuters the emerging market labor cost advantage (it isn’t a great boon for US employment but beneficial at the margin as catalyst for supply clusters) but it does spur capital flow back into the US.

Expectation of Fed taper improves relative US yields and pressures leveraged players who have stretched for yield in emerging markets to liquidate.  

Although the emerging markets have made strides in improving local finances, they are still highly dependent on the center for demand and capital flow, i.e. deep old world consumer and capital markets.  Despite all the hoopla about BRICS taking over the world, the tried and true dynamic about center versus the periphery still applies.  Our emerging markets flow diagram describing this dynamic, created about five years ago, needs little in the way of updating. I expect the wheel is now rotating counter-clockwise for emerging markets, i.e. the self-reinforcing negative spiral should accelerate:

012114 EM Flow Diagram
 

Trade Idea: Buy the Short MSCI Emerging Markets exchange traded fund; symbol is EUM—we shared this trade idea with subscribers to our Global Investor service on January 7th 2014.  If there is an EM crisis, this ETF should rocket higher. 

 blackswanjan23

 

If you want to consider subscribing to our Global Investor service, you can do so and find more information here.  

Regards,

Jack Crooks

Black Swan Capital

www.blackswantrading.com

info@blackswantrading.com

Twitter: @bswancap

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Next Week’s Second Fed Taper Will Test Gold Bulls’ Resolve

Posted by Sumit Roy - Hard Assets Investor

on Thursday, 23 January 2014 18:58

The Fed may taper again one week from today.

Gold prices were little changed over the past week as the rally that began at the start of the year lost steam. The current rebound off December’s low near $1,180 hasn’t been that powerful, which is in contrast to when prices first bottomed at $1,180 last June. Following that initial bottom, prices zoomed higher over the next two months, hitting $1,350 in July and $1,450 in August.

This time around, prices reached as high as $1,260—granted, it’s only been about three weeks since the December bottom. 

At this point, we don’t necessarily see any specific positive catalysts to send prices higher. Rather, it will be gold’s ability to shrug off bad news that will be most telling, and dictate whether we see continued gains in prices.

The next test will come on Jan. 29, when Ben Bernanke and the Federal Open Market Committee make the last monetary policy decision in which he is at the head of the central bank. Bernanke is set to retire at the end of the month.

Currently, expectations are that the FOMC will go ahead and taper its bond-buying program by another $10 billion, bringing monthly purchases down from $75 billion to $65 billion. If that happens, we will look to see gold’s reaction.

Following the first taper in December, gold bounced off $1,180. Will the yellow metal test that level again? Or will it shrug off the news and build on the current rally?

In our view, if gold can break $1,275 on the upside, it will indicate the rally has legs, and prices may continue higher to above $1,300, even $1,400. On the other hand, a move back below $1,200 will put the bears in charge once again.

GOLD (YTD)

goldtechnicalchart20140122

SILVER (YTD)

silvertechnicalchart20140122

 

PLATINUM (YTD)

platinumtechnicalchart20140122

PALLADIUM (YTD)

palladiumtechnicalchart20140122

 

….read pages 23 4 5 & 6 HERE

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