Monday, October 5, 2015

09/29/15 Review of US Treasury Bonds

US TBonds
The cycle of accumulation and distribution defines cause (building) within a broader mark up phase for US Treasury Bonds.

A 25 basis point (bp) interest rate cut, the third reduction in six months that follows 100 bp reduction in the reserve requirement a month ago, and the Fed's reluctance to hike rates extends a coordinated effort to spur economic growth throughout the global economy.

While coordinated 'stimulus' supports a countertrend rally of commodities foreshadowed by negative concentration discussed months ago, it won't reverse defensive global capital flows regardless of the hype. Defensive money flows likely includes US Treasury bonds until the wolf pack culls the herd of weak European and Asian debt. Only after the herd has been thinned will it focus on the US. Today's largely technical and countertrend decline should reverse and return to mark up as the global economy turns down. Gentleman could very well prefer government bonds, notes, and bills at least in the initial stages of the next panic.

Complacency towards longer duration bonds, however, should turn to fear. What Mellow omitted is that investors prefer the public sector (bonds) when confidence in the private sector (stocks) is failing. Investors preferred bonds in 1929 because confidence in the private sector was failing. While gentlemen could prefer bonds in the initial stages of the next panic, they'll like turn on them as confidence in the public sector falters from an already shaky position. This will turn complacency into fear rather quickly.

Insights follows interplay of price, leverage, time, and sentiment (click for further discussion of Reviews) to help recognize the transition from cause (building) to mark up or mark down for subscribers.

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