Bonds and Dollar Collapse

Friday Sept 14 2012  9:22 AM CST

All the things we have discussed here the lat few months are now falling into place. Money if rushing out of bonds and the dollar, Safe Harbor Assets, and racing for the Open Ocean of Risk. 

The Dollar

The charts says it all. This is the ETF for the Dollar, It has collapsed through its ribbon of moving averages taking out first 22.4 and now support at 21.8. Any computerized trading. program would have the Dollar in full sell mode now. 

TLT The Bond Market

  

Frankly I was a bit puzzled that TLT held up as well as it did yesterday after the FED announcement, Today it is playing catch up  literally collapsing (what other verb works here?) 3.26 or 2.68%. This is an excellent demonstration of what I have been pointing out concerning the  importance of computerized trading programs and the 50/200 day Moving Averages.  Once TLT moved through the red 200 day MA, the sell programs really kicked in ths morning. Does the FED care that they are buying into a bear market in bonds to the tune of $40 B a month, I guess not. After all they just print the money like any other counterfeiter. 

Let's look at the bigger picture for TLT.

Here it is clear that the whole TLT Egg is just beginning to crack, much lower prices lie ahead. What would appear to be support at the 110-115 level where TLT traded at the end of  2011 and into 2012 will likely not mean much. The  50 day MA is just now starting to break over. Readers are aware that we don't like hanging targets on charts as we tend to believe too much in our own predictions. But a return to 100 does not seem unreasonable given that Ben ' Spuds' Bernanke' is buying all the bonds he can. 

I mentioned that I was long some 63 TLT puts. A put is an option which is a bet that prices will decline for the underlying stock. At $100 a point, these will roughly decline $6300 for each dollar that TLT falls. The majority have an October  19 expiration. And given the proximity to the Election, it seems reasonable that most of the downside action will have been concluded by that time. And if this pace of 3 points a day keeps up, that will certainly be the case. Once the bond market turns, it usually does not look back so don't be surprised at the upcoming strength of the collapse. I do not intend to turn TMP into an options letter. It is  a rare thing for a real opportunity to exist to try an options strategy. But the combination of public participation in TLT, Bill Gross continued wrong recommendations, and the specter of the FED repeating QE which collapses bond prices was the literal perfect opportunity. 

But as someone who was a stock broker for decades, I realize that it is imperative to demonstrate a a stunning trade on occasion to gain credibility. 

Stocks, gold, silver, all up, and now oil is playing catch up as well. 

Cheers, we certainly hope you are long many of our recommendations. 

Comments

[Robert Takacs]

I have been reading various stock market blogs and it is clear that there are a lot of shocked and angry investors who cant believe the market is going up. Nearly unanimous anger at Bernanke for QE3. Investor sentiment still very negative despite the strong rally. Sounds like many are or were short the market or were out of the market except for bonds.

During June, July and August I was buying near the lows for many sectors you have recommended. My broker told me months ago that I was his ONLY client out of 150 who did so. Every one of his clients was reducing equity risk. Lowest stock market participation in 25 years.

Spoke with my broker today and he says that only a couple of clients have called to discuss buying stocks. Broker says 90% of all money still flowing into bonds. Investors are still risk averse. Sounds like the rally has room to run since very few are interested.

[Dennis Elam]

Robert

Indeed I am preparing the Weekend Edition of TMP, bonds via TLT are just now breaking through 200 day MAs, the internals for stocks have quickly zoomed on the way to February levels, I assume quant programs are automatically taking funds out of bonds and into stocks, hence the big drop in bond prices Friday.