We have warned that capital is in a flight to quality, therefore creating the
bubble in government paper. We also warned that the bond market on the
long-term peaked in April/May and that we should expect a further rally
in the short-end. This significant move has unfolded right before our
eyes. The fact that the bonds have peaked in advance, yet we have the
short-end rising into this period, reflects the stark reality that
capital does not trust government long-term.
The
Fed has been warning that they must raise rates to reestablish
“normalcy” to the yield curve. No one in their right mind should be
buying long-term paper at these rates. The capital has been heading into an even shorter investment cycle, and this presents a highly dangerous potential on the horizon.
What is the concern? With capital consolidating into short maturities, this means that any change
in rates will have a far more immediate impact upon the sovereign debts
of all nations. The typical dollar bears say, “Oh, well China sold a
huge amount of bonds!” and they twist this into somehow being bearish
for the dollar. China is following the trend: sell long-term and move
short-term.
We
can see that volatility beginning to rise from October moving forward.
We are looking at a panic cycle that appears in the U.S. Fed funds by
February, followed by another next August.
This is confirming the change in trend that we
see with 2015.75. It is not a monumental crash in stocks, nor is it the
end of the world with the blood moon. This is the peak in government.
As time begins to move forward, you will look back at this turning point
as rather significant. It may be more than an announcement that there
is water on Mars. We have had so many things happen this week, right
down to a meeting between Obama and Putin at the United Nations.
So grab a drink. You might need one as we start to move forward away from the change in trend — 2015.75.
The fact that we have the stock markets crashing into the 2015.75
turning point rather than making a major high is indicative of the
future we should expect to unfold. In 1987, the low was on the day of
the ECM as was the case in 1994 whereas 1998.55 was the high in the Dow
to that day. So a low suggests higher highs where as a high at this
point in time would have mean a profound longer-term correction.So far so good. We may yet shake the tree and send money running into the waiting arms of government. Then look out for the aftermath.
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