Memorial Day Weekend May 29 2021
IMPORTANT
We are changing our view on GSG from long to short term hold.
We are also re evaluating the idea that bond prices may rise, looks more like they are topping now.
And our lead in above, is that stocks have finally likely topped May 10-12.
Stock Market
DJIA
Note the Key Reversal May 10, a high of 35,091.5 and a close at 34,742. Then a short Wave 1 down and a Wave 2 up actually taking OBV at bottom to a new and robable final high.
SPX looks very much the same
With the thought that the markets indeed have topped just as Team Biden wants a $6 T budget, let's take a look at the weekend WSJ.
While the WSJ Editorial Board is absolutely certain the economy is about to burst open post covid, read As the FED looks on Inflation Takes a Toll.
The article notes spends rose .5 % in April. But then it notes that inflation adjusted prices declined. In short the spending increase was not at all, rather it was an inflation induced price rise.
Bond Market
On the previous page Paul Flood at Newton Invest Management does not think the FED will aggressively raise rates at this time. Well Paul rates have been rising since last year.
And as usual a FED governor wrote a piece earlier this week claiming the FED had plenty of ways to stop inflation. Really as Biden spends $6 T he does not have?
The modern day FED was created in 1913 after the Panic of 1907. Its purpose was to create an agency to rescue over active bankers from their own self induced disasters. The Idea that the FED is there to dictate interest rates, manage the entire economy, or goose the stock market is a recent fantasy. The FED follows the rate market it does not dictate it.
Read here on how the FED follows the market, it does not dictate the market.
AGG notice AGG is peaking right at the 50 day MA
In previous posts we noted that interest rates rose for 39 years form 1942 to 1981 and then fell from 1981 to March 202.
An article above the stock market report on page B 11 report Convertible Bond Sales are Soaring
The article notes that 28 issues are paying no interest, the highest number since 2001. That was the year the dot.com bubble peaked and burst.
The CEO of Matthews South which advised issuers of convertibles, "These are the best terms in the history of the market. We've never seen anything like this."
Well they are indeed the best for the issuers, probably the worst ever for buyers at the top of the fifth wave from the 1931 low.
A convertible bond should pay interest. 94 Firms have issued $54 Billion, and note 28 pay nothing. With rates at historic lows, the most reasonable assumption is that rates will rise. As they do a bond paying no interest will quickly fall in value. And if stocks have topped, the chances for a valuable conversion to stock is zilch. This is is the dot.com era all over again. investors buying a security that pays nothing now and it not likely to convert to anything in the future.
TBF A Bearish Fund betting on lower bond prices
TBF is the mirror opposite off AGG. It has fallen to its 50 day MA. OBV remains strong and is liable to rise
30 Year Interest rates, note this looks just like TBF
The 30 year rates have clearly been rising and are now completing a fourth wave correction.
GSG Commodity Fund Weekly
It makes sense that stocks, bonds, interest rates, commodity prices would all be turning in about the same time period. GSG may make it to the upper 15s this next week or two before topping on the weekly chart.
Interest rates will likely increase due to government induced spending and the literal fear of default, see previous articles on massive demand for CCC rated debt, SPAC failures and such.