It’s such a momentous thing that I will lead off with it today. The bellwether 10 year Treasury Yield hit 4.98 this morning and still looks poised to go much higher. There’s an intermediate cycle projection of 5.35.
I turned bearish on bonds way back in September of 2020 when it was clear that the market had turned after the Fed began pulling in its QE horns. I have warned repeatedly ever since that the bear market in bonds would continue indefinitely as long as the Fed was doing QT, and in fact until the Fed went full QE again.
Through the years of QE, I repeatedly showed how the Fed was only able to suppress bond yields by buying or funding 90% of Treasury issuance. When they started talking about tapering QE, I warned that the market could not sustain anything less than the Fed taking care of that 90%. In other words, the market could only absorb 10% of issuance organically on its own while maintaining stable prices/yield. Then when the Fed announced that it was thinking about QT I warned that the bond market would get even worse.
And it has. And it will continue to. Intermittent rallies notwithstanding. Maybe one of those rallies comes from 5% or maybe it waits until 5.35, or even 6. But look at this chart and tell me how you’re going to be bullish on the bond market.
And it has absolutely nothing to do with inflation. Nobody knows it yet, but prices have reversed and we’re now in deflation. Just look at house prices and market rents. The idea that yields have anything to do with inflation is just wrong. Besides, nobody knows what inflation is anyway. They think it’s the CPI. That’s another thing I’ve harped on through the years. The CPI doesn’t measure inflation. It was never intended to. It’s an index that was built for suppressing the cost of labor contracts and government benefits and salaries. Only now it’s working in reverse.
It’s very simple. The Law of Supply has not been repealed. It works. It has always worked, and it will continue to work until we are all sucked into a black hole and our molecules, atoms, electrons and other subatomic particles cease to exist. Dealers Pull In Their Horns
As for stocks today, when the margin calls go out because of the bond market, they sell whatever they can to raise cash. The ES 24 hour futures have hit the latest 5 day cycle projection of 4295. But key spport lines are 10-15 points lower. Stay tuned.
For moron the markets, see:
- When the Market Is Ready, an Event Will Appear October 16, 2023
- Cycles Still Lean One Way, Not t’Other October 15, 2023
- Dealers Pull In Their Horns October 14, 2023
- Veal Market – Baby Calves Get Slaughtered October 9, 2023
- Gold Breaks Down, With Long Term Implications October 5, 2023
- Tepid Tax Collections Mean It’s the Supply October 4, 2023
- The Rhymes of History September 24, 2023
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