The global bond markets have been screaming an ugly message at us loud and clear, and I’m afraid that it’s not a positive one.
Amazingly, US Treasury bonds have bare budged in a month, despite a recent 25 basis Fed rate hike and many more to come.
In the meantime, stocks are also barely changed in 2018, with the S&P 500 (SPY) off only 1.1%
Lead stock, Goldman Sachs (GS) has had its headed handed to it, off a heart stopping 11% in two weeks, and is also down on the year. Apparently, they forgot how to trade.
The implications for your investment portfolio are so momentous and far reaching that I am going to have to list them one by one.
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Read them and weep:
1) The US is eventually going into recession. Maybe not immediately, but in a year, or two for sure.
2) No major legislation will be enacted into law this year, not for health care, and not for tax reform, deregulation, or infrastructure.
3) Washington has become a major source of instability, and no one has any idea of how this will all end.
4) The US me be about to enter prolonged ground wars in North Korea, Syria, and Afghanistan. It turns out that bombing foreigners is easier for the president than getting legislation through a Republican controlled congress. It always is.
5) The stock market is about to crash, again. So far, we have been suffering massive whipsaws with no net move. The downside momentum will accelerate once we smash through the 200-day moving average at $256. That “Sell in May” thing is just around the corner.
6) The Trump trade is toast. Financials, commodity, energy, coal, and industrial stocks will lead the charge to the downside.
7) The price of oil is rising. For the first time in history, there is minimal cheating on OPEC member quotas, set to run until 2019.
8) Gold (GLD) will rocket. It has remained stubbornly above its 200-day moving average, and $1,300 per troy ounce beckons. Gold could imminently hit a four-year high at $1,380, and then eventually the old high of $1,922.
9) The US dollar is headed lower. Take the rising interest rate support away from the greenback, and it should fall like a ton of bricks. The yen is headed to ¥100 a dollar, and the Euro will rebound to $1.25. Foreign stock markets will shudder.
10) The unemployment rate, now near all-time lows, will bottom out. The great irony here is that while the president vociferously campaigned on an aggressive jobs program, he may well preside over the biggest job losses in history, thanks to hyper accelerating automation and artificial intelligence.
There is another alternative explanation to all of this.
The bear market in bonds is not dead, it is just resting. So is the Trump trade, possibly for another six months.
A certain Monty Python sketch about a parrot comes to mind.
That all we are seeing is a giant short squeeze in the hedge funds’ 2017 core short position in bonds for the umpteen the time, and that we are almost done.
Hedge funds have grown in size to where they are now the perfect contrary market indicator. It is the classic “Too many people in one side of the canoe” trade.
There are other structural factors at play here which are hard to beat.