Treasuries Tuesday

Charts here come from Bigcharts.com. You are encouraged to go there, learn to set the controls (on the left hand side) yourself, and make your own charts. It is a skill well worth developing and then you don’t need to depend on me to make a posting every day.

The prior version of this posting is here:

http://chiefio.wordpress.com/2012/05/08/treasury-tuesday/

It includes a longer description of the various tickers charted here.

Live chart of selected bonds

Live chart of selected bonds

TLH  -  10 to 20 Year US Treasuries
AGG  -  Aggregate of many maturities bond fund.
SPY  -  S&P 500 benchmark
MUB  -  US "AMT-Free" Municipal Bonds.
IEF  -  7 to 10 Year US Treasuries
TIP  -  Treasury Inflation Protected Securities TIPS
LQD  -  "High Quality" aka Liquid Corporate Bonds
TLT  -  20+ Year US Treasuries
WIP  -  World Inflation Protected Securities

Bigcharts Bond Chart Example comparing S&P 500 with TIP (Treasuring Inflation Protected Securities ), WIP World Inflation Protected Securities, and TLT Long Duration Treasuries (all ETFs).

Interpretation

We’re having a week with a lot of data released. We also had Bernanke Speaking. Both cause things to move.

So what have we had? A small spike up, then a fall back. Does that mean it is time to exit bonds?

There are a a few stages to any reversal of trend. Until they are all completed, it is not a ‘confirmed exit’. However, the early stages can be seen and generally indicate at least a reasonable time to start lightening the percentage. Why not just say “Be Out!” all in one go? Because markets often move in waves. A wave having a “dip” acts very similar to the last wave topping and rolling over. So we depend on trade rules to ‘step out and be ready to get back in’ until the “be out” is confirmed.

For now, price is still above the simple moving average stack and they are still ordered from fastest to slowest. That’s an ongoing “bull market” run until proven otherwise. MACD has had an inflection to put “red on top” but is still above the zero line and has only a modest angle downward. While DMI has had the blue line cross the black ADX line, it is still on top. Again, not a “bear market” trend confirmation.

So we must treat this as a ‘dip’ in an ongoing bull market until it confirms a trend reversal (via DMI Red on top, MACD below zero, and an inversion of price and the SMA stack.

But what about RSI? It has touched 80, and then had a ‘lower high’. That is the “first call” for a top.

In an ongoing bull market, RSI can sometimes oscillate between 50 and 80 as the price moves up in waves. You can see some of that looking back toward last August / September. Last October we even had price drop below the SMA lines in a bit of a “head fake” (a term from hockey, where a player moves their head in one direction, causing the defense to get out of position, then moves in the opposite direction.)

All in all, I’d expect something similar to that pattern this summer and fall. It would be a reasonable risk mitigation to move half of any bond position into other assets or cash. If the reversal to a decline is continues, then the rest can exit as well. If this is a ‘buy the dip’ moment, then some of the position continues to participate.

My opinion? We’ve got very little that can be done to make interest rates lower. The Fed is already at 0% to 1/4% rate. The market demand can’t get much higher (as money has already flooded out of Europe). So the macro economic trends have nearly reached a limit of how far they can run. Is there likely to be a complete collapse in Europe that would drive US treasuries even higher? Perhaps, but not until after the August Vacation period, IMHO ;-)

Even TIP has gone flat as inflation expectations have run headlong into oil price collapse and economic stagnation.

Looking at the SPY line, we have “failure to advance” to the downside. Add that Goldman Sachs has issued a “buy commodities” statement, and some large money will be leaving bonds for other markets.

So while it’s a bit early to make an exit call, IMHO that’s where we are at. But not a rush yet. Moving in tranches ought to work OK, and keep an ear to the ground for news of horrific economic collapse elsewhere in the world, or for economic recovery in the USA. The first says to slow the leaving, while the other says to leave bonds and enter “risk assets” like commodities and stocks more rapidly.

Remember too that this market (like so many others) is being driven to a large degree by news flow out of Europe. If there is a ‘rescue deal’ for Greece, Spain, Italy, etc… then US bonds will drop (and WIP might even rise). If there is a break up of the Euro Zone, then the US Treasuries will rise for a while.

Have I mentioned lately that I hate news driven markets? ;-)

Other Sources

Remember, too, that under the “Stock Charts” category (right side of this page) there are a variety of selected charts with particular collections of tickers in them. Including this one for bonds and currencies:

http://chiefio.wordpress.com/2011/12/20/bonds-overview-charts/

which includes longer descriptions of the tickers here, along with more and different tickers including some in other currencies.

Charts here may be a bit more variable from week to week as things of interest pop up. Right now, the non-US bond markets are not very interesting.

Some Links

A variety of ETFs, including bond ETFs, are at the iShares site. Choose the particular bond fund off of the “fixed income” tab:

http://us.ishares.com/home.htm

There also exists a variety of bond funds at the SPDR site

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics, Trading, and Money and tagged , , . Bookmark the permalink.

18 Responses to Treasuries Tuesday

  1. E.M.Smith says:

    Yes, I know it’s not Tuesday everywhere (as it ends here in 3 hours)… I’m doing some ‘catch up’ after a hard push to get through some contract work. Since I think the treasuries were an important point at this moment, I thought this posting ought to be made now. I’m going to do “Wednesday” next. ;-)

    Oh, and a personal side note:

    I’ve been sitting up most all night long on ‘cat duty’. A local cat has been terrorizing the bunnies. I think I’m winning. At any rate, the bunnies are once again reasonably comfortable and not acting like they are shell shocked. (The one with a claw wound has mostly healed). I added area lighting and have put a small “wire blockade” on the “cat highway” that is the main fence down the center of the block between back yards. If that one continues to work, I’ll add another one at the other end of my chunk of fence (and perhaps even try sleeping one night 8-}

    At this point two cats have learned to avoid my fence and one is thinking about it. I’m not sure which of them is the rogue cat, but if need be, I’ll escalate until the ‘slow learner’ realizes it isn’t worth it.

    On the positive side, I’m getting to play with my camping equipment and I’ve gained a new appreciation of just how cold it is getting at night in June… Wrapping a towel around the head and draping the shoulders like an Arab Headdress does wonders to keep you warm… it also keeps mosquitoes off the neck and ears. We didn’t have mosquitoes back when we had smog… since the air is now quite clean, the mosquitoes are back. Expect more malaria globally, but from reducing smog, not global warming… About 20 years ago we had lots of mosquitoes in the surrounding forested areas, but none in the city ( I think the smog made them sick). Now they are ‘a few and manageable’, but getting worse. I miss smog… ;-)

  2. Pascvaks says:

    I guess the thing that makes me most nervous about ‘recessions’ and ‘depressions’, is that the same people who are most responsible for digging the hole we find ourself in are the ones we look to dig us out. Ever since FDR, Presidents and Congress, and the fools that put them in their jobs, have gotten into their little minds that they, not the private sector, are the be all and end all of everything. I sure hope this attitude changes; I don’t think the fools are going to change;-)

  3. George says:

    1: The mosquitoes are due to the salt evaporation ponds in the Mountain View / Palo Alto area being returned to salt marsh. In another couple of years, you will have the salt marsh smell to go along with the bugs but it takes a few years to build up a large enough mass of decaying plant matter to produce enough gas to notice. And when that stuff catches fire in the fall, watch out! It is going to be one stinking pall over the area. In about 5-10 years time people are going to want the salt ponds back.

    But my reason for stopping by today was to share this which I find to be absolutely brilliant:

  4. boballab says:

    Hmm this doesn’t look good:

    NERVOUS Greeks are withdrawing up to 800 million euros ($1.01 billion) a day and stocking up on canned food as they fear the country will be forced to leave the eurozone after this Sunday’s election.

    Greek citizens fear the ramifications of a return to the country’s previous currency, the drachma, if the radical left-wing party and strong election contender SYRIZA wins this weekend.
    Bankers said daily withdrawals from the major banks were hitting €500-€800 million ($631.8 million-$1.01 billion), Reuters reported.

    Meanwhile, retailers say consumers are stocking up on non-perishable foods like pasta and canned goods.

    http://m.heraldsun.com.au/election-apocolyse-greeks-stock-up-on-canned-food/story-e6frfm30-1226395368597

    Can you say bank run?

  5. E.M.Smith says:

    @George:

    Um, the salt pans were on the other side of the bay from Palo Alto (at least in the ’70s when I got here and since). I don’t think my mosquitoes flew in from 15 miles away… more likely they came from the forested areas about 4 miles away (where I’ve dealt with them before the smog left…)

    So while I think you are likely correct for folks dealing with mosquitoes in Milpitas and Santa Clara, I’m in the “Cheap Seats” much further south…

    Nice video, BTW… I like Nigel a lot. I have no idea how he ended up with a seat, but I’m sure glad he is there. The way the Eurocrats around him “smirk” when he is talking leads me to think the EU is toast. Headed for the rocks of dictatorship at high speed and unaware… though I think they are starting to get a tiny bit uncomfortable as things are unraveling now…

    I love his points about how loans to bail out the insolvent must include tranches from the insolvent… so they are forcing places like Italy to borrow at 6% to 7% to loan to Spain at 3%… and they think this is helpful…

    All the while the German answer is closer and tighter integration under the German Boot… Haven’t we tried that a couple of times already and didn’t it turn out badly each time?… I suppose it could be worse. It could be the French proposing it (not like that whole Napoleon thing turned out poorly…) Oh, wait, the French ARE proposing it too…

    You just can’t make this stuff up…

    This Chart kind of sums it all up… EWI Italy EWP Spain FXY Yen TLT US Treasuries.

    Sure… lets have more of what made EWI and EWP look like that… /sarcoff;>

  6. E.M.Smith says:

    @Boballab:

    They’ve been having a bank run for a while now. About a month that I know of. Now it’s extending to “Hunker down and shelter in place” mode.

    The Greeks, at least, recognize an implosion when they see one… I hope Anna is doing ok… (Anna is a poster at WUWT and a Greek, living on a Government pension IIRC.)

    All I can figure is that the European Socialists want a collapse to usher in the replacement of Evil Capitalism by Good Central Control… It makes the most sense as a motivation. It’s either that or a horrific level of stupid.

    My prediction is that the folks who made a protest vote for the Greek Nazis will shift to the Socialists and we’ll see a rapid ‘renationalization’ of just about everything along with a newly minted and Drachma with all prior debt recast in Drachma and inflated away. If they stay in the Euro Zone, I’m not seeing a way to keep funneling money from Germany to Greece fast enough… especially with Spain and Italy joining the queue…

  7. George says:

    Um, the salt pans were on the other side of the bay from Palo Alto

    Nope. Cargill had salt ponds from Mountain View all the way up to Redwood City. The ones in Redwood City are still in operation. The Ravenswood ponds are very near you on he West end of the Dumbarton Bridge and the Alviso region extends into Mountain View:

    https://maps.google.com/maps?q=http:%2F%2Fwww.southbayrestoration.org%2Fmaps%2Fponds-google18.kml&hl=en&om=1&t=m&z=11

    The green areas on the map are salt ponds undergoing restoration:

    http://www.southbayrestoration.org/track-our-progress/

  8. Nigel Farrage is a thorn in politician’s sides, since he will persist in telling the truth about the idiocies he sees. He certainly got applause in that clip, which was quite surprising to me. In our terms, he’s very right-wing Conservative – I’m not sure how he comes over in the USA. He’s shown willing to laugh at himself and take jokes at his expense without getting angry and is intelligent – not normal traits in a political leader. I like him, but since he has some very right-wing followers I’d feel worried about letting them in. Those Asian people whose parents were immigrants but grew up in the UK are mostly just as British as I am.

    In my opinion, the euro is a good thing for europeans iff the individual governments don’t (a) act as if they can devalue when they want to (by spending more than they get in tax-revenues and borrowing a load) and (b) don’t overtax the productive countries/areas to pay for improvements to unproductive ones. That’s a big iff, and so far it seems like neither. Germany has already done this once in bringing East Germany up to the same standards as West Germany was (or at least they tried and are still trying) and my German relatives (by marriage) were bitter enough about the high taxes then, but accepted it as necessary. Now they are being asked to do it again, but more so, to support the PIIGS. It’s a hard ask.

    We’ll find out in about a week whether Greece will stay in the euro or not. It’s a hard one to predict, even being fairly close to it and seeing more news about it than you people in the States.

    The logical response to Greece leaving is for the ECB to just print a load of money to replace that which has been lent out and will never come back. This is of course dishonest, but it’s what governments normally do when they’ve borrowed too much – just devalue the currency so you don’t have to pay as much back. Imports become more expensive, sure, but exports get a boost so everyone is happy apart from the people who invested in euros from some other country. Good for me, too, since my pension is paid in pounds sterling and the UK government devalued by around 30% once I’d moved to France.

    Overall, my bet is that Greece will leave the euro pretty soon, and then the euro will see enough devaluation to pay for it. The Greeks will go back to the drachma, and that will also rapidly devalue. There will be a lot of lumpy mattresses around the world. Renationalisation of everything Greek? Maybe, but since Defkalion (the other “nearly there” LENR device) is setting up in Greece and recently had government inspectors in before going dark, it could be they have an ace in the hole and will pump a bit of what government money is left into them so they can earn the money for the nation (yes, maybe that too will get nationalised one way or another).

  9. tckev says:

    Germany is now squealing at the cost of maintaining the unified currency. This to me sounds very ominous.
    http://profit.ndtv.com/News/Article/don-t-overestimate-germany-as-euro-crisis-fighter-angela-merkel-306232

    North/south split coming? Maybe.
    IMO until the shiny pants in the EU politburo act, and make it decisive, this rot will eat through any notion of European stability.

  10. E.M.Smith says:

    @George:

    Um, I’m not near either end of the Dumbarton Bridge, so it’s really kind of academic for me in any case. I’m way down near Los Gatos and the mountains… About as close to being out of San Jose as you can get while not being in farm land ;-)

    I can assure you that any mosquitoes trying to get to me will find it vastly easier to go the couple of miles from the hills than the dozen(ish) over downtown San Jose and a wide swath of suburbs…

    Basically,. I could walk to the mountains (that have always had a mosquito issue) while to get to the bay would be a very long hike and I’d rather camp at the half away point… or make the 15 minute to 20 minute drive… Mosquitoes here did not cross the 3? major freeways, 2 major airports, dozens of surface streets, and thousands of houses. They came from the creek that runs down from the hills “just over there”…

    The smog used to keep them chased out. It doesn’t anymore. (Though lighting a Tiki Torch on the patio makes enough smog to drive them away for a while ;-)

    I don’t for a moment doubt that the swamps being recreated near the bay cause the folks there to itch and swat, it’s just that I’m nowhere near them…

    @Simon:

    Currencies are just a smoke screen in front of the real economy. The basic problem is that folks always want to spend more than they want to work. Either you can force them to recognize this (via “austerity” or via “being frugal”) or you can pretend otherwise and inflate like crazy… That lets the government perform a subtle kind of theft and they can get away with it more than they can get away with a broad tax rise, so that’s what gets done.

    The end game is a worthless paper currency. Germany experienced that in the era of the World Wars, so is resistant to it.

    Only a few ways out of it:

    Greece adopts German ethos per money and living inside means.

    German adopts Greek ethos per money and “print and inflate”.

    Germany loans money to Greece and they argue about it. This only works for about one more year.

    Greece leaves the Euro, then prints and inflates.

    I would predict #3 for about a year, then #4. Germany is expecting #1 while Greece is expecting #2 (after a big loan under #3…)

    The Greeks are not going to accept “German Austerity” and work habits, nor the German Yoke.

    The Germans will not carry the PIIGS much longer.

    IMHO those two statements push us to the breakup of the Euro.

    @Tckev:

    The EU Politburo (like the term, BTW ;-) will not act. They will continue to “Believe in the dream” right up until things blow up in their collective faces. Never underestimate the timidity and ability to deny reality of politicians…

  11. George says:

    Ah, ok, I thought you were Palo Alto. But anyway, they are doing extensive salt pond reclamation on both sides of the bay. When they get around to doing the ones up around Redwood Shores, it is going to be an absolute mosquito convention in the South bay and peninsula.

  12. tckev says:

    EM
    Sadly I am of the same mind as you on EU mismanagement.

  13. adolfogiurfa says:

    Surprisingly many in the world still believe in “stimulus”, stimulus with newly printed currency. Economy starts with human work making goods able to be exchanged for other goods made by other working people; currency it is just a means to facilitate this exchange, increasing the number of currency necessarily increases the ratio of currency versus goods, leading to inflation. Worst of all is issuing bonds against imaginary goods. Speculation, from the latin word speculum , means mirror, as for duplicating an image or as for giving you or me an image instead of a good. An example of this scam is the fact that gold sales duplicate real stocks of this metal. That should be prohibited, but this is just wishful thinking.

  14. adolfogiurfa says:

    When times are bad either you spend SAVINGS or you start working on something. The real urge to start working comes from feeling hunger. I have told many times that in my country we had, during the 90´s, 85% of unemployment, then there was no help from the government as there was neither money nor a chinese out there to lend us money, now is one of the fastest growing economy in the world. How was that possible: SIMPLY as history shows, it is not until you really feel HUNGER that we humans move ahead. If you have someone who is helping you all the time it is just to make you a slave, a thing, not a human being.
    http://www.giurfa.com/truman.jpg

  15. I recall some rich relatives (when I was young) showing me a million-lira note they brought back from holiday – it would buy a loaf of bread or so. Maybe a pizza. This sort of history makes people keep money as goods rather than cash in the bank, and is probably deeply-ingrained in Italian politicians. Just print higher-denominations as the value per unit diminishes. I suspect this attitude has not been changed by being in a currency outside their direct control.

    Money is a fickle thing. In ’86 I was involved in a computerised telegraph project in India. A rupee then was worth around 15p. Paying 5 rupees or so for a beer didn’t seem a lot. It was pointed out to me that the guys pushing the hand-carts full of fish or whatever through the street earnt maybe 3 rupees a day, and kept a family of 6 people on that money. India did then (and probably still does) run a multiple-speed economy, where the value of money varies depending on which stratum you were in.

    In defence of the Greeks, though, the EU has thrown an awful lot of money at the poor countries in the hope of getting them up to Northern European standards. It’s difficult to refuse such largesse, and maybe they’ve just been expecting more of the same.

    Germany is a nation of savers, or at least it has been in the past. Inflation hits savers hard as the value of the savings diminishes. They don’t like this, of course, and will try hard to avoid it in the currency they are using. So although I see your point, EM, I think Germany are not going to carry the PIIGS for many more months, and will stick to their “against the constitution” argument against Eurobonds where other people borrow on Germany’s credit. It seems in any case, if the news here is right, that Greece leaving the euro has already been factored in to the markets. No-one is going to be particularly surprised, except perhaps the Greeks.

    Personally, I like the idea of the euro in that the price of something does not vary with exchange-rates, at least within the euro area. It’s a shame the politicians haven’t adjusted to the fact that their currency is no longer as stretchable as it used to be, so cock up their budgets. Borrowed money does have to be paid back sometime, so you only borrow money if you see a profit on the deal.

  16. NoMoreGore says:

    So, EM, do you think the rot of the Ponzi scheme extends across the Atlantic? That the collapse dominoes thru the EU, taking out the EURO, and subsequently taking out the Dollar? Or can the US simply print away the impact? I truly wonder about this. For the devaluation of the dollar to become evident, I should think Something else must first become the reserve, and I don’t know if the Renminbi will be able to pull this off or not.

  17. E.M.Smith says:

    @NoMoreGore:

    “Paper money eventually returns to its intrinsic value — zero.” Voltaire…

    Thus it shall always be… The only questions are when and how fast.

    The $US is now worth about 5 CENTS of the value when I was a kid and we went off the gold standard. So we’re already 95% of the way there…

    On the Euro / Banking issues: As long as the Socialists are running things both in the EU and the USA the money will become worthless. The only question is how fast. Along the way they will try every possible way to reach into other people’s pockets trying to save their broken world view.

    Initially I think they will try making SDR’s the reserve currency (Special Drawing Rights from the IMF) but since THEY are based on a basket of the other paper currencies (and a little bit of gold) it is basically saying “let us all pool our credit limit on the credit cards!”… and is doomed to fail.

    So it all comes down to just who is going to decide they need to make more real wealth and not consume more than they make. That will be a long while coming (though the USA has a chance at it in November – but I doubt the ability of the Republicans to realize the game doesn’t work like it did under Bush and Bush any more… end of the rope and all.)

    @Simon:

    It is a culture conflict between the PIIGS and Germany. There will be no easy solution… but a good show to watch.

    @Adolfo:

    The “alternative economy” springs up. Back to barter and ignoring the paper economy…

    “Stimulus” works if you have two things: Variable exchange rates between the stimulating area and the competition and velocity of money too low from irrational causes. At present, the velocity of money is low from very rational causes and we have a peg on exchange rates with China. Our stimulus shows up in China and bank “reserves” with zero velocity of money. No effect.

    @Tckev:

    Yup.

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