Tuesday, June 29, 2010

Graham Summers - Treasuries Have Entered “Autumn 2008” Mode

Another keen observation from Graham that he sent to me yesterday BEFORE today's action - as always, it pays to keep your eye on the money as it moves from one asset class to another. Equities are usually the last to react...

Treasuries Have Entered “Autumn 2008” Mode

I’ve written extensively about how US Treasuries are treated as a safe haven when things are not well in the world. I do think that at some point this will end (and there will be a flight from the Dollar), but right now Treasuries remain the “go to” place for investors when they want safety.

Because of this, Treasuries rally whenever investors get spooked. On that note, I want to point out that Treasuries (black line) have remained elevated throughout the last month, despite stocks (blue line) rallying.

Remember, the bond market is a much more sophisticated market than the stock market (it’s also twice the latter’s size). So the fact that bonds didn’t roll over when stocks rallied tells us that the “smart money” is spooked and doesn’t trust the stock rally at all.

Indeed, when you look at a long-term chart of US Treasuries, something VERY significant just happened:

For the last three years, US 30-Yr Treasuries have been trading in a clear-cut range (the exception being the spike that occurred during the Financial System Crash in late 2008/ early 2009).

So it is extremely and I mean EXTREMELY significant that Treasuries have recently broken out of this range. Even more significantly, the former overhead resistance line of the last three years is now acting as support.

This is a BIG deal. The last time Treasuries were at this level was November 2008. I think we all remember what happened then.

Does this mean we’re going straight into a full-scale Crash now? Not necessarily. But it does mean that the “smart” money is extremely worried and getting defensive now for what’s to come.

Good Investing!

Graham Summers