Bond Bulls Better Defend Now, Or Brace For Impact.
CLUB/EDGE posts sent April 10th & 11th
CLUB/EDGE client note sent evening of April 10th 8:48PM ET:
Stress Is Building
As posted under #chase-ideas channel pre-CPI this morning:
Dealers are short gamma BELOW ~5226 (my level of bullish above, bearish below).
If the market reaction is to sell-off, the market is at risk of systematic CTA funds joining dealers, who need to delta hedge by selling weakness because they are in negative gamma land.
In a nutshell: Stocks and Bonds fell together today because both are overbought.
US dollar & Yields rose strongly today because both because both were oversold.
Expensive stocks will not do well under rising inflation, a too-loose Fed, a President pressuring the Fed to cut, and a politicized Treasury that has to fund the proliferate spending in DC at the expense of spiking higher gold.
Biden today:
"INFLATION NEWS MAY DELAY RATE CUT BUT WE WILL HAVE A CUT BEFORE YEAR-END" BIDEN
“Well, I do stand by my prediction that, before the year is out, there’ll be a rate cut,” Bloomberg
Geoffrey nails it:
“What he is doing is actually inflationary b/c he is helping to unanchor the term premium on the long bonds.
When you are used to LATAM bs, and you see that, you can be sure that the bond investors go -‘I need some term premium to compensate for the political interference bs’”
ALL OF THIS = FISCAL DOMINANCE
The World Is Swapping Bonds For Gold
Must Watch: https://twitter.com/i/status/1778079270335652152
When the world’s reserve currency is being weaponized, and gold is the other/better tier 1 asset, why buy anything else if you’re a central bank?
Even Japan is selling UST to try and defend the yen. Remember, the higher US yields go, the more pressure on USDJPY to rise above 152 - the "intervention" level.
And the higher the USDJPY, the more likely the yen carry trade unwinds - slowly than less slowly.
Anyway, we haven't even talked about Geoffrey's take on my "bond bounce" thesis & our combined CONTINUED BULLISHNESS IN PRECIOUS METALS!
Must Read: - SLV - Update - and Geoffrey Says Bonds are Garbage Worse than Bitcoin
I will close with this final thought:
Bond bulls better defend now, or brace for impact.
CLUB/EDGE client note sent evening of April 11th:
I Am Very Angry Today (With Myself) - I Thought We'd Have More Time
USDJPY above 152 is trouble.
VIX STAYING above 10W (14) is trouble.
USD pushing into 105.80 (where it broke down in Nov) - as Gold rips, Yields Spike & Equities stay bid - is trouble.
And dollar flying with yields makes sense if you think like Geoffrey:
The problem is that a ccy falling vs commos forces rates higher (return in kind).
So when will rising yields be a headwind for stocks?
My 6.5% 10Y Yield Call for Q4 is Moved Up
TNX has already pushed ABOVE 4.33 CRITICAL RESISTANCE ALREADY, which translates to short-term resistance of 4.688% 10Y.
But after that... BIG PICTURE my 6.5% 10Y yield call for 2024 made November 2023 ... is in play.
I'm mad because it's much earlier than I expected, so with that, once above 4.33 on weekly, in time, 6.66 measured move.
I thought we had more time! But it's happening now.
And unless ** they ** come in with FX & BOND INTERVENTION, and/or restart QE, OR stop the deficit spending dead in its track ... market is in trouble.
"Hard To Short In Fiscal Dominance"
That's what I warned last November, too. But here we are, and I don't like markets here.
I actually entertained the idea of closing a lot of Swing Longs & even Trend Longs, but then I remembered...How fiscal dominance works:
inflation - rips
housing - rips
stocks/tech - rip
rates - rip
dollar - rips (but it's really devaluing which is why everything else can move higher)
gold - rips
commodities - rip
bonds - crash & crash & crash
then after intervention tricks fail, rates/equities crash.
Add to that:
VIX is artificially suppressed so it's not a great barometer any longer.
Options market dealers artificially create equity demand.
Liquidity, in general, is plentiful post global stimulus, and it's an election year, and we have the Fed Put & Yellen Yahtzee to keep markets bid.
I know all this; but I do not like equities here, so I'm trying to reconcile that.
I just keep asking at what point in this fiscal dominance phase, do these "zero coupon assets" get hurt by rising rates?
But without 'austerity' or intervention:
1. JGB long rates will rise
2. US deficits will rise
3. Inflation will rise
4. Fiscal dominance will rise
5. Gold will rise
So I can't get out of my head:
Q: What now will cause the world to stop selling bonds for gold?
A: An equity correction would do it.
@TheWineSwine reminds:
"The higher all commodities go the more bonds will have to be sold, and new USD leverage taken on."
Geoffrey digs deeper:
The reason Gold "rises" so much is that people do not know "USD as FX reserves" is a political fabrication, not economic reality/correlated asset to US Trade Balances.
ROW is discharging their excess trade surplus in USD into the Gold market. That removes USD as FX reserve.
If you remove USD as FX reserves then the USD has to find its own price based on its trade balance!
When/If US has trade balanced, the USD has no reason to fall versus Gold.
Until then, no reason to sell Gold and Silver - until NOBODY wants to sell. Then you sell.
And therein lies the source of my discontent:
I do not like equities here, and yet they have done "nothing wrong".
But, the higher gold rises, the more bearish I become on markets.
Trust your gut…you have good instincts!