"When we are the victims of an illusion we do not feel it to be an illusion but reality. It is the same with evil. Evil when we are in its power is not felt as evil but as a necessity, or duty. Once a certain group of people has been placed outside the ranks of those whose life has value, then nothing comes more naturally than murder. As soon as men know they that they can kill without fear of punishment or blame, they kill; or encourage killers with approving smiles." Simone Weil
As crowded trades go this flight to safety into the long end of the curve and the 30 Year Bond, nicknamed Big Daddy by the bond traders, is about as jammed up as it gets. It will be interesting to see what happens with the equity markets over the next two to three months given this measure of fear and uncertainty.
30 Year Treasury Weekly Chart
The US equity markets went out on the lows, after having set a new low in this decline, ahead of a four day weekend, at least for senior traders.
The markets have 'jitters' over the Non-Farm Payrolls report tomorrow sparked by fresh concerns over a double dip recession. The "D" words, Depression and Deflation, are being tossed around aggressively.
Let's remember this and compare it to where we are in thirty days, towards the end of July.
As an aside, it is now becoming increasingly clear that Goldman Sachs 'triggered' the housing crisis by pulling its credit lines to New Centuary Financial mortage company, and helped to trigger the most recent crisis by pulling credit lines first on Lehman, and then later on AIG.
I wonder if Goldie has what it takes to pull the credit lines on the United States? One can only wonder. Keep an eye on Big Daddy, because it's the whale in the ocean.
The metal bears and bullion banks certainly get an 'A' for effort in this most impressive 'shock and awe' smackdown in the gold bullion futures. I was getting concerned about this sort of attack given the recent things floated out in the press about gold and its relationship to external events.
I had an email this morning saying that 'this proves that charting has no value in a manipulated market.' If this is your understanding of charting, that it is a sure thing, that perfect system you have been looking for, then you are right, it has no value to you. Maps do not take you where you wish to go; maps let you know where you are relative to your objective.
What charting provides is perspective, a visual representation or 'map' of the market.
More importantly, it helps us to understand the context of this sell off, which looks like the banks 'threw the kitchen sink' at the futures market over growing concern about the potential for a breakaway rally, and the physical offtake at the Comex getting out of control.
That this is US-centric selling program could not be more clear from this chart, a selling phenomenon which is repeated almost every day after the London PM fix and as the US markets open.
I do think the cup and handle formation is still active, although it has been pressed to the level at which we would be more concerned about follow through selling to the downside. As we have always said, in the event of a general selloff, a liquidity panic, everything will get sold, and the charts are trumped.
I was a little surprised that they could press it all the way down to 1199 even on an intraday, expecting 1204 to provide more solid support. But the trade is thin, and the markets are 'lightly regulated' by the CFTC under Gary Gensler (Goldman alumnus) to say the least.
Now having said all that, I am not overlooking a broader setup in the markets, created by the likes of Morgan Stanley, Goldman Sachs, and JP Morgan and their associated hedge fund cronies, in which the big financials are herding investors, shoving them around the allocation plate, keeping them moving, which is how they make their money through taxing transactions heavily with fees, commissions, and soft frauds.
Stocks are rather oversold in the short term, and the bonds are very overbought. As I mentioned yesterday, if the market does not 'crash' it would be quite seasonal for the bonds to come under bear attacks in July. Here is what that chart looks like.
Can they get ever more overbought? Sure, we just saw that sort of panic buying in the last great plunge in US equities. But historically bonds are well priced to put it mildly, and certainly not for anyone seeking value. I think a lot of tension in the market is due to the Jobs Report tomorrow, and the fact that most traders will be leaving on vacation after today.
As I recall Goldman was forecasting stocks to go lower, down to 950, if we broke support as we did a few days ago. I am interested to see if their forecasts match up with their own books. Personally I think that since they are a Fed supported bank, they should be required to disclose all their major positions in the particular, not aggregate or net, on a monthly delay at most, with weekly even better. That way the people would know if these monstrosity banks are acting honestly as a major bank supported by taxpayer dollars, or are they really enormous hedge funds which are entitled to a greater level of secrecy, but should be fully culpable for all their losses.
Gold's bull trend is intact, but it is facing formidable resistance at $1150.
Silver is in a bull trend, but the $19 level could be difficult to surmount.
The US dollar index is still in rally mode, but has backed off the key 82 resistance level. The Dollar index is a composite of other currency crosses and the recent strength has been largely due to euro weakness. If stocks retreat the dollar rally will likely continue.
The Long Bond looks range bound, and is hanging on to support.
The SP 500 is a good representation of the US equity markets. It has reached the logical conclusion of what might be termed a bear market bounce based on monetary expansion, similar to other recoveries after significant declines. If the SP 500 breaks down from here, the risk is that it might fall to retest the lows. The market rally is thin and not backed by widespread buying, and certainly not the traditional buy-and-hold investor.
To put it simply, the SP 500 and US equities in general are now 'hitting a high note' and it is a good question to wonder how long they can hold it without some backup from the chorus. The 'chorus' of course is evidence of a structural recovery that is not depending on Fed monetization, official sleight of hand, and accounting gimmickry.
Even with the 'good' employment number, the stark contrast is that the median hourly wage continued to decline. This is not deflation, as the CPI and PPI continue to advance, so much as a reflection that the jobs available are largely temporary and of an inferior quality from which to build a sustainable recovery.
As alway, keep an eye on the VIX which is one of the fear indexes along with some of the key spreads.
Some US institutions are being compelled by new government regulations to buy long bonds to 'match duration' of their obligations per a ruling of a few years ago.
Other than that, anyone buying the 30 year bond, other than for the Fed carry trade, in an time of quantitative easing and free spending government, should be institutionalized.
The Fed bond carry trade is when the primary dealers buy Timmy's bond with Ben's money, and then sell it back to the people's short term debt in dollars via the Fed. It keeps yields on the long end down, and maintains the appearance of stability. The dealers get to front run the buys and short the sells.
It is a pyramid scheme to accomplish a short term objective.
MarketWatch
Treasurys edge up before long bond auction
By Deborah Levine
Nov. 12, 2009, 11:11 a.m. EST
NEW YORK (MarketWatch) -- Treasury prices edged up Thursday as investors anticipated the government would garner sufficient demand for a record amount of 30-year bonds sold during the session.
The $16 billion bond sale follows two major note auctions earlier in the week that were met with plenty of demand from investors.
Traders also pointed to a significant amount of maturing debt and coupon payments when the auctions settles that create a natural bid, as investors may roll that cash into the new securities.
"After the success of the first two offerings, this one is also expected to garner good support too," said analysts at Action Economics. "There remains a lot of cash to invest."
