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Irredeemable Currency De-tooths Savers

Irredeemable Currency De-tooths Savers

An irredeemable currency system traps…

Treasury Bonds -- 'Critical'

I read a recent article stating that US Treasury bonds were at a critical, technical juncture. I don't know if anything in the markets is ever so "critical" to call it such, but yes, Treasuries are at longer term resistance. However, what I think is important about such a breakout from a longer term trend are the implications, and the most likely scenario would be a recognition by investors that deflation and a recession are in our near term future.

For the record, our bond model remains bullish, and it has been bullish for about 13 weeks now. You can read more about our market analysis on the Treasury market over the past 4 months by using the search function in the upper right hand corner of the website. Type in bonds or TLT. It is a cool feature.

The weekly chart of the i-Shares Lehman 20 plus Treasury Bond Fund (symbol: TLT) is shown in figure 1. Of course, it depends upon how you draw your down trend line, but TLT is at a "critical" level as prices butt up against the down sloping trend line drawn from the 2008 highs. The most significant area of resistance is at $100, and when considering the positive momentum of various indicators on the daily charts (not shown), it is very likely that TLT will make it to that "key" level.

Figure 1. TLT/ weekly
TLT/ weekly Chart

So what would a breakout above these "critical" levels imply? In all likelihood, it implies that the economy is slipping into recession. There is "talk" of an economic soft patch and it is only temporary. As Philadelphia Fed President Charles Plosser said yesterday: "I believe that this weakness will likely prove to be a temporary soft patch and that the underlying fundamentals remain in place for the economy to resume growing at a moderate pace in the second half of this year, and to strengthen a bit more next year." There are rumblings of the "R" word, but our economic leaders have yet to come out and call a recession. And Treasury Bonds are at that "critical" juncture of having moved higher in recognition of the current soft patch, but they have yet to signal to investors that deflation and a recession are in our near term future.

It is very "critical". Indeed!


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