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Saturday, January 5, 2013

Doubt The Invisible Hand WIll Lose Their Shirt In Bonds

The invisible hand moves slowly around the cycle of time. Investors ignorant of them often swim against a current of money as the trend changes.  The frustrated screams of  "it's a rigged market!" follow soon after.

Money flows in the US bond market remain compelling. Declining volume as support gaps are filled suggests a contraction in downside force (chart 1).  These contractions often lead a change in trend.  Accumulation of price weakness by the invisible hand also supports change in 2013.  Patience is needed as the third count, a stronger buy signal, could take months to materialize (chart 2).

Someone has to be asking why is the invisible hand accumulating bonds in early 2013?  Big money, while moving slowly, recognizes something MSM won't touch.

Chart 1:  US long bond ETF

Chart 2:  US Treasury Bond 20YR+ (TLT) And Bond Diffusion Index (DI)

Headline:  Why Goldman Thinks You Should Dump Bonds Now

Goldman Sachs (GS) strategists have issued a big warning to clients hiding out in bond funds: You're about to lose your shirt.

The reason: interest rates began rising this week, and if they return to the historical average yield of 3 percent, prices for long-term bonds will plummet. (By their very nature, fixed income prices must fall if rates rise.) 

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