Massive crash coming!!!
By Contrarian
Published: November 21, 2009
There is a lot of debate whether we have seen the short term top for S&P and if there is massive crash coming. One that could take it back to 900 levels. Having looked at a lot of data and fundamental debates on its possibilities, we turn to the bond markets to find any clues to such an event.
Surprise Surprise. Bond markets seems to give a very strong and an unmistakable signal that the big boys are piling into the US treasury short term paper which has seen the yield crash. The crash seems similar to the Sept 2008 one and we know what happened after Sept 2008.
Take a look at the 90 day T- Bill. The wild crash In Nov 2009 seems similar to Sept 2008.
Here is the yield on 1 year Treasury.
Here is the yield on 2 year Treasury.
One of the advantages that Big boyz have over the public is that public rarely pays attention to Bond markets. If they did, they would be less wounded and less number of times. The action in the short term paper surely indicates that big boyz are piling out of equities and letting the public hold the empty vase when the crash comes. Now I must say this could all be a hedging activity to Tuesday FOMC minutes when Ben Bernanke stands to speak. Inflation has gone over the expectation and it is only expected to worsen. They are looking for any signs that Ben may use a slightly hawkish statement.
Gold and Silver Bugs:
What will be interesting to note is if a crash in equities does come as shown from the Bond market activity, what happens to Gold and Silver prices? I think there can be a substantial correction but no where close to what we saw last time. Infact Gold can spring back from any correction at a fast clip. But at the same time, Gold may not correct at all and just keep going up. The answer is I really do not know nor do I want to venture a guess here. Gold is in unchartered territories and its behaviour will be completely akin to what we have seen in the past.
Fresbee
Investing Contrarian
Tagged with: bond, Dollar, Global Investo
Remember that the FDIC has a program that insures non interest bearing accounts until June 30, 2010 in full. I read last week that many of the big banks like Citi, BOA, etc are ending their participation in the program on December 31, because the FDIC has jacked up the fees in an effort to wean banks off the program. Could this explain some of the move in short term yields?
While I have positioned myself in bonds for a possible correction as you have pointed out, I wanted to also say that there may also be other factors working.
Fresbee ..great analysis. We always get caught with looking at just equity dimension. The Bond market really holds the key isnt it?
But having said that I think you are reading too much into this. This is normal activity and most banks and hedge fund managers are shifting and closing out their profits and running out their balances sheet for the year end audit. What better than to show your holding of US paper rather than show your high yielding gambling into stock markets.
I think after some bounce in the dollar index, you will see the fall of the dollar continue ….