Wednesday, December 08, 2010

Treasuries Bubble Explained: Video: Bonds and Quantitative Easing For Dummies tnr.v, czx.v, lun.to, grc.to, ngq.to, sgc.v, mgn, asm.v, ktn.v, epz.v, cgp.v, rvm.to, rm.v, lmr.v, laq.v, gbn.v, bva.v, bvg.v, alk.ax, nup.ax, srz.ax, usa.ax, abn.v, jnn.v, ura.v, max.v


  Very well done video with clear explanation of the Treasuries and QE - if it is still too heavy and you need some annotation, just watch another video here, you will have fun! But back to business and today it was really busy in the Treasuries corner:


  Treasuries are getting toasted today and yields are rising all across the curve signalling higher rates, there is no buyers any more at these prices apart from FED - Treasury Bubble is bursting right before our eyes now. Why it is important - please revisit the our article posted just few days ago.



The art of modern economics turns into the pure magic now: how to make it enough for everybody, when there is not enough left.


We are hitting Peak of Everything.



  It is time for a reflection point today: we will post some charts, some quotes from our previous articles and you can draw your own conclusions as usual.

  The basis for our weekend university will be our article from September 6th, 2010.


"Investing in Lithium: Looking for Catalyst. With traders coming back from holidays, it is time to look at the potential catalyst to reward us for our patiently acquired collection in Gold, Silver, Copper, Zinc and Lithium.
One of the major catalyst which can trigger redistribution of liquidity is on the chart above. We have a Sell signal in long term Treasuries. Maybe, our Treasuries Bubble is really ready to pop this time. Bear market, upcoming crash and Deflation are so much advertised now that it is time to take a contrarian approach again and take the side of the FED.
As you remember, you can never find any investment advise on this blog - you are always welcome to read our travel notes - but today we have to warn you particularly. Our investment thesis has a one, but mortal flaw - if we are wrong and Deflation will beat the FED with Mr. Bernanke and his shareholders - we do not know what to do. And the most dangerous part of it is that it will not be important any more even for us. US Corp does not have a luxury of "lost decades" like Japan - it will be teared apart by internal and external forces, when the coming war will be seen as a relief even by the population sacrificed in it. It is history; but we will not go there.
We will share one free, but very expensive advise here - before the end of the world, time will come to pay your bills and not once. Let's concentrate on our circle of competence: what we can change and try to position ourselves in case if somebody will manage to get all of us from headlines about Deflation and into the Inflation stage.
We will be looking at the signs - footprints - left in the charts, volume and direction will be the confirmation of our ideas and you can always make your own opinion."

We will start with a joke, which is so close to the truth...



  We can talk about a lot of things, we can try to search for the trends and even find them, but the magic will come true only if the liquidity will be coming in the sectors and particular Plays we have chosen.
Our Call on Treasury Bubble is ongoing and now the Double Top in Long Term US Treasuries is confirmed. Even recent announcement about QE 2.0 did not change the picture here. Record outflow from equity funds and into the bond funds by retail investors are confirming that the next blood bath is already in the making. After the Dot.com bust and Real Estate Crash, investors who are looking for safety will be creamed again.
  When this picture will be apparent and Inflation will make headlines - after first hitting your grocery bills and insurance premiums - bursting Treasury Bubble will provide the redistribution of liquidity in search for the yield and protection of the principal value eroded by Inflation.
  This flood of freshly minted money by the FED out of thin air will raise the boats, we need to find the sectors, which will benefit the most. When the relative value of the amount, which investors are willing to pay for those assets, will make it not only for the lost purchasing power of that FIAT currency they will be priced in, but also will provide a premium and the return at the real rate adjusted for the inflation.
  We will be searching for the bottle necks, where the most powerful economic forces of Supply and Demand will be driven by changing perceptions with creation of the new markets and shifting Demand with very limited and Non Elastic Supply in the best case.

"On the chart above we have another powerful formation in case of confirmation of our Sell Signal in long term treasuries. TLT could be signaling the formation of a double top with a very strong reverse pattern, which means higher yields and lower treasury prices. It means that FED is ready to QE 2.0 Among the anecdotes from the market place, explaining this technical footprint in the market, we will mention:

1. China is selling Treasuries and buying into the Japan and Korean bonds.
2. Serious talk on CNBC about 100 year bonds.
3. Record low yields in treasuries with record high corporate cash balances.
4. Corporations like IBM and Johnson&Johnson among others issuing record low yield bonds and slashing their interest payments.
5. M&A activity in growth sectors: BHP and Potash, Dell and HP bidding war for 3Par, deals in the Gold sector and Lithium.
6. Record outflows from equity funds into bond funds. Investors are primed for another blood bath - this time in "safe" bonds.
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