Selling Bonds For Gold Is Market Bearish
CLUB/EDGE post April 13th - after I warned April 11th "An Equity Correction Is My Baseline Bet"
CLUB/EDGE client post Saturday April 13th 6:09 PM
In a client post Friday April 5th I wrote:
I am now expecting a coordinated effort from our Central Bank to spike the USD and dump 10Y yields.
I know this is a sudden call, but I'm actually bullish bonds here/soon - TLT.
I am expecting gold + silver to come in - maybe quickly next few weeks.
BIG PICTURE I AM STILL VERY BULLISH PRECIOUS METALS
But I think it is time to expect intervention.
I went on to say:
For now, bonds continue to act fragile. Most expect we will have to wait until Yellen's Quarterly Refunding Announcement April 30th - or FOMC May 1st at the latest. I wonder if they can wait that long.
The next day, April 6th, I predicted that an equity correction is coming.
So far, SPX had its biggest down day this year on Friday - with SPX $5111 hitting exactly from my call out in my live trading room.
VIX hit 400W at 19.12 on Friday - rec'd long March 21st to clients when 12.45.
I posted toward end of day that Vol sellers ** should ** come in here now...
But Big Picture, the picture is bearish.
Markets have morphed from #BuyTheDip to #ShortTheRip.
From my mantra Dec-Feb:
"Market is Overbought But Not Broken" to now:
”Market is Overbought AND Broken”
I also wrote:
And given Bitcoin is a currency not commodity, it is only a matter of time before it too gets devalued.
Given latest news, bitcoin is crashing down 10% so far this weekend and meme coins are down much more:
Last week, also, I suggested a USD spike was incoming. It came. It helped gold & silver - with oil + other commodities - to stop spiking higher and turn down hard Friday.
Many were misjudging the fall in gold, oil, commodities as a sign WAR is not imminent. Or bonds slightly green today means they are not weak.
I was expecting this pullback in gold/silver after a spiking higher USD - it just lagged.
And this is where I where hope to help navigate an environment where when yields crash up commodities can pause.
It’s gonna mess with some folks. Just Remember: old correlations don’t work in fiscal dominance.
So No Bond Bounce Then?
My call for bond bounce was teeny tiny in comparison to what I expected so far.
Geoffrey chimed in why:
you have a problem of return in kind versus return in money.
The monstrous lag of rates vs commos ALWAYS has the same result.
A plunge of ccy versus the commodities ALWAYS results in crash up of nominal rates.
You have a repeat of 1927 / 1967 repeat of FX as reserves discharge. (Thornton 1802)
You are ABSOLUTELY not in monetary dominance here.
So, big picture, gold is rising and USD is weakening relative to hard assets as countries far and near devalue their currency and slowly disentangle their trade balance and reserves away from USD.
And as Geoffrey points out:
The problem is that a ccy falling vs commos forces rates higher (return in kind) and that's a headwind for stocks.
He has been very clear why gold & silver works higher in this macro backdrop:
FX as reserves always result in massive devaluation of the FX used as reserves.
As the currency plunges vs commos, the compensation mechanism force rates to climb but they lag very badly.
Right now rates are lagging massively the plunge in currency.
The USD is plunging 20% versus commos, so evidently rates have to climb.
It's not really a 1825 or 1870s, or 1929 or 2007 credit boom and bust, it's more an inflationary boom.
So resolution is more like a deval + inflation
On bonds, he is still not bullish and will short every bounce:
YELLEN is going to lose control on bonds and this will do a wonderful clean-up on triple C bonds.
Junk credit will sink. Rates are going to kill the Russell Companies. 40% of those companies have no earnings.
Then HYG.
That's the end of 14 years of Mickey Mouse / Minsky markets right there.
He goes on to say there is going to be a carnage in bonds funds...
Mickey Mouse markets = ZERO rates and printing since 2010.
In 2010 they should have stop printing, do large bankruptcies - Evergrande and Country Garden style
Then raise rates, clean up mal-investment, but they doubled down on Minksy garbage again and again.
So dear clients, Geoffrey says he will happily short bonds again if they bounce, but big picture we have big problems coming.
I think it (bonds) is the worst asset after #BTC. Total Garbage.
The solvency test is horrendous & primary deficit a black hole, while the #Fed has a quasi fiscal deficit and sterilization problem.
Well then, Geoffrey, tell us how you really feel! ;-)
Waiting on FX & Treasury Intervention
I see a potential for US Govt intervention - as source of every significant equity and bond bounce we've had: March 20th, 2020, Oct 21, 2021, March 12, 2023, Nov 1, 2023...
And next up: Yellen with QRA April 30th and FOMC May 1st.
Perhaps we will get a short-term ramp on geo-political conflict escalating -- and a resumption higher in precious metals.
Craig warns that an Israeli - Iran conflict can mean an "oil up, yields up, $ up negative feedback loop".
And then where will FOMO money go?
My bet: Back into CASH, GOLD/PRECIOUS METALS, T-Bills, Money Markets, Inflationary Assets & companies tied to THINGS not paper.
Bigger picture, Craig, Geoffrey and I are aligned: longer-duration bonds won't have a sustainable rally again UNTIL US Govt stops spending as if capital is disposable and debt doesn't need to be repaid.
Final thoughts from Geoffrey:
What I know from archives is that interventions always end up in failures in 300 years of history.
The only thing that works is doing the right thing.
Sadly, until then, bonds/USTs remain a #ShortTheRip story.
BONUS: For Your Weekend Listen
My Interview with Tradier veterans: @jimiuorio and @Bob_Iaccino