Dollar and 30 yrs, Big Stinky Mess

Correct me if I’m wrong
Seriously, I’m clueless

Fate of the dollar

And consequently commodities, equities, etc.

DX Run up bull flag 7-23-16

What will the dollar do?  I believe, as I have stated elsewhere, that the dollar looks like it wants to complete a wave up, on a large time frame (6 months +).  Until evidence otherwise, this still appears the case to me.

 

 

 

In the meantime…

Look at that chart, what a mess.

dollar stinky mess

We are right in the middle of this range.

Janel, Lisa and Henry and I took sailing lessons for a week in San Diego, years ago.  Our instructor’s handle was WC!  What a character.

One of his catch phrases was, “big stinky mess.”

ZB, 30 year Treasuries.

Here’s another ugly, nasty chart.  Not gussied up for public consumption.  The way I actually look at charts.  (I mean, I do clean them up sometimes.  But first thing in the morning, this is how they look.)

ZB megaphone

What does this chart say?

This is just stream of consciousness, thinking in real time.

To me, that is a large time-frame reversal pattern.  Acceleration out of long term up channel, creating a megaphone phenomenon.

Why would bonds reverse, over upcoming months?  Or not?

What is supposed to drive bonds higher like this?  Lowing interest rates.  New bonds yield less, so old bond are worth more.

What has been happening since 2009 to interest rates, during this giant escalation?  Nothing.  Interest rates at zero, capped off with a tiny a tiny rate hike in 2015.

Look at the action since 2014

ZB 3 waves

3 waves up, each a valid impulse, not taking back 50% of the wave before, forming a series of bull flags, accelerating through the uptrend.

The second and third waves could be seen as a single completion of the first wave.

And now, we are currently forming another bull flag.  Can this chart really accelerate more?

World: “Yay, 30 year US treasuries.  They yield .025%.  Buy buy buy!”  Better than Europe and Japan, where we have to pay them for the privilege to hold their debt.

It sounds like a joke, but it’s true.  Clearly there is a puzzle here.  What will happen next?

It looks to me like this chart “should” reverse, on a large time frame.  What would cause that?  The Fed actually follows through, and raises rates.

That would take the dollar up out of its 2 year bull flag.

But who knows, in modern bizzaro econ world.  Maybe the Fed could lower rates, but not as fast as Europe goes more negative?

I keep seeing confirmation of my bias (Dollar up, bonds down, commodities under pressure, for 6 months to a year) but am looking for the converse view.  Makes me itchy if I can’t argue the reverse of my idea.  Gotta be careful of those dissonance blinders.

Can Bonds top like this?  Will they?  Looks more like a bull flag.

Bond sandwhich

Bond sandwhich

They are neatly sandwiched between the up and down move.  They took back exactly 61.8% of both.

Inconclusive

This is still a thought in process.  It seems to me there has been an un-natural (not free market type) driver in bonds prices.

Certainly, with European central banks buying corporate bonds, they’ve introduced an “un-natural” force.  And of course, central banks have bought some portion of us Treasuries.  I don’t know the figures.  So that adds a buying force.

And it’s hard to calculate how far that buying force can push things, and how long it can last.

Bonds VS equities

Bonds are “supposed” to move counter to equities.  In theory, when the market is “risk on” the ocean of capital flows in to stocks, and out of bonds.  And when the tide reversed to “risk off” the bonds go up, and equities go down.

It “should” look like it did on this intraday screen capture I did…bonds and equities opposite each other

ES ZB opposing 2

And it’s true that bonds were stronger in 205-16, while equities were flat and occasionally liquidating.

However, overall, bonds trended up since 2009 (and forever before that) along with equities.  Gold was also going up at the same time, although it reversed in 2012, while bonds and equities continued up.

It seems clear that a huge influx of capital from 2009-2014, from QE, flowed in to everything.  What’s next?  Will there be more money printing from the fed?  Probably.  Hey, everybody’s doing it!

If the fed first raised rates, it would spike the dollar, bonds should fall, equities and commodities too.  Then the Fed would scream: Oh no! the sky is falling, reverse the rate raise, and start a new round of QE.

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