"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Friday, March 2, 2012

Bonds and other assorted topics

Please see the following charts for some comments on the US long bond market - in my opinion this is the SINGLE MOST IMPORTANT MARKET ON THE PLANET.

The weekly chart is very interesting as it shows a market that has the POTENTIAL (not there yet) to be developing a ROUNDED TOP FORMATION. That pattern is an especially reliable one because it indicates a SLOW but STEADY SHIFTING OF SENTIMENT occurring over a generally longer period of time as the realization slowly dawns on traders that the fundamentals are shifting in the other direction. This formation will not be validated unless we get a strong breach of downside support.

I have noted two of the nearest Fibonacci Retracement Levels where support for the bonds might arise. These areas will bear watching if for some reason the Federal Reserve cannot sustain its "PROP UP THE BONDS" operation.

DO NOT FORGET - the one thing most dreaded by the Fed in addition to the US Treasury Department is rising long term interest rates because of the mathematics involved in servicing the gargantuan and disgustingly pathetic level of US debt. Interest payments on the US debt are going to be consuming a larger and larger share of future government revenues in the months and years ahead. At some point, it will break the back of our nation. Thus the necessity of the Fed playing around in that market artificially suppressing the rate of interest at the long end of the curve.

I am strongly of the opinion that this reason was the SINGLE LARGEST DETERMING FACTOR behind Wednesday's orchestrated hit of the commodity sector and particularly the precious metals. Bernanke and company have categorically and continually dismissed all critics of their near-zero interest rate policy as engendering inflation by dismissing those concerns with statements to the effect that inflation is "modest, contained, temporary, etc."

They must continue this charade if they are to keep the bond market from collapsing to the downside with the subsequent onset of a rising interest rate environment. Bond traders have thus far been prevented from aggressively pushing on the short side of this market due to direct Federal Reserve involvement in that market. Should there be any shift towards an inflation bias that takes hold among those who trade or hedge in this market, those forces would overwhelm Fed efforts to artificially push it higher (yields lower).

A rising gold price strikes at the very heart of their supposition that inflation is subdued and there are little if any consequences arising from a policy that by its very nature is one which debases a currency. That is why this messenger (gold) must be discredited if the FED itself is to RETAIN ANY CREDIBILITY.

To witness a $100 drop in the price of gold within a few hours time and to have it explained by analysts who should know enough about market action to explain it as "disappointment in the lack of an imminent QE3" is laughable were it not so utterly wrongheaded. As stated in Wednesday's column, the Fed must not have commodity prices surging higher while they pursue a policy that has never failed to weaken or undercut the "value" of any currency whenever or wherever it has been plied.

When the Fed gives the hedge funds the green light to shove Equity prices higher after promising no hikes in interest rates until the latter half of the year 2014, they "expect" the hedge funds to be "well behaved" and not to jam a goodly portion of that hot money as well into commodities but rather direct their fire power into the equity world at which point the politicians and monetary authorities can bask in the accolades of the vast majority of what has become a dumbed-down citizenry who think that a rising stock market signifies a healthy economy.

Most distressingly to the Fed, the hedgies are not being compliant servants but had the audacity to chase the commodity complex higher and begin pushing not only energy but food prices higher once again, not to mention the bellwether metals complex. Were that to continue unabated, the bond market, which was crushed on that Wednesday and then on Thursday, would see buying support beneath it evaporate. Hence a pause or a time out was necessitated in the commodity complex rise which the Fed managed to secure by week's end based on the CCI.

Stay tuned as we are witnessing what I am coming ever more strongly to believe is the end game for this horrible experiment gone awry.


  1. Dear Trader Dan,
    I agree with you that the FED is targeting interest rates and that the Bond market is far more important to the economy – and better connected to economic data - than stocks. However, in my opinion, it is the US stock market which is “strategically” important to the point of being “targeted” by the Oval Office, the Plunge Protection Team. For me the link between banking interests, political interests, monetary interests, all key on stock market performance. This is not the case in Europe, where the bond market is the basis of the pension system, and one of the reasons that the Europeans have been so slow to copy the American example of fiscal stimulus. A question of diverging interests!
    I just happened to look at the Russell Index today because there was a headline on its “underperformance” Friday. As anyone who has traded stocks knows, a sure sign that you are at a top is when the move becomes more concentrated in fewer stocks – also called distribution – please ask Jim Sinclair to comment, or Richard Russell.

  2. Spot on as ever. Another article at the end of my rant gives a little more detail, and yet another supporting opinion of what is to come. Timing is everything. IMHO with this bunch of Government Cronies, we will see much more in the way "metals intervention" including margin hikes, excavation taxes, ore taxes, taxes..taxes.. and who knows what else they will dream up. Bottom line, it is not nice to fool "mother nature". Thank you Dan for all you do. It is apparent to any of us who pay attention what is happening. If you watched the exchange between Ron Paul and Ben on Feb 29, the climax is coming. Anyone who is paying attention knows it. I am just glad my anger and curiousity enable me to hear the warning signals. I thank god I paid my way through an college degree that enables me to understand how the government will steal and lie, yet use the media and "ignorant" not stupid just unaware to alienate those who know what they are taliking about. Thanks again.
    Here is the link..

  3. From my observations, the inflation genie is out of the bottle in a big way over the last few months and is accelerating. Food inflation is rampant, Energy inflation - we all know about that... Taxes, higher. Goods and services - higher.

    They can spin the numbers any way they want and do temporary measures to keep the fire from burning out of control, but it's just that - temporary. As I said previously, about another six months of temporary measures to ensure the Obama re-election. But as we can see - even the slightest uptick in employment causes inflation to spike in a large way.

  4. Really good stuff, DannyBoy. Thanks!

  5. I also watched Ron Paul talk with Mr Bernanke. I think it's worth your time to listen in:
    Keep in mind that the smiling gentleman knew that the silver coin Mr Paul held in his hand was about to live a "Godfather" moment (the film).


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