Saturday, January 24, 2009

Another Expert Weighs in on Bonds… Now we're getting to the heart of the matter!

Mike Larson, of the Weiss Research team, made some clear and intelligent comments on the treasury and bond market yesterday in his Interest Rate Roundup post Treasuries mauled as my "no free lunch" theme gains traction:
I have been hammering home a clear point for several weeks -- there is no such thing as a "free lunch." You can't simply bail out anyone and everyone, especially when you're a debtor nation, and expect your creditors to just grin and bear it forever.

Now investors seem to be waking up. Treasuries have been getting mauled this week, losing value every single trading day this week (Long bond futures are going for around 128 21/32 vs. 136 7/32 last Friday). Yields on 10-year Treasury Notes have shot up to 2.68% from their December 30 low of 2.06%.

This is exactly what the 3 peaks pattern predicted as I spelled out in my article Bond Market Hide & Seek – A Domed House & 3 Peaks...

Larson expands on his fundamental view which I share:
As a refresher, we’re flooding the world with hundreds of billions of dollars in Treasuries to fund our ever-growing deficit. Next week alone, the government is selling $40 billion in two-year notes, $30 billion in five-year notes, and $8 billion in 20-year inflation-protected securities. Total borrowing needs may hit $2.5 TRILLION this fiscal year, according to Goldman Sachs, up from the firm's previous forecast for $2 trillion in issuance.

As if that weren't enough, incoming Treasury Secretary Timothy Geithner just fired a shot across China’s bow by saying the Chinese government is “manipulating” its currency, the yuan. The Obama administration believes that China should allow the yuan to strengthen against the buck.

There’s just one problem: China is the world’s biggest holder of our government debt…
I think if you revisit the fundamentals section of my article that you will find that both Bill Gross and Peter Schiff would agree.

I made some comments about the latest technical developments in my latest End of Day Report.

Here is a big picture look at the technical pattern “3 peaks and a Domed House:”

TLT 2 Year Daily:

TLT 60 days:


I believe Mike Larson is a sharp cookie who is getting to the heart of the matter!

Eagles – Heart of the Matter: