• 544 days Will The ECB Continue To Hike Rates?
  • 545 days Forbes: Aramco Remains Largest Company In The Middle East
  • 546 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 946 days Could Crypto Overtake Traditional Investment?
  • 951 days Americans Still Quitting Jobs At Record Pace
  • 953 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 956 days Is The Dollar Too Strong?
  • 956 days Big Tech Disappoints Investors on Earnings Calls
  • 957 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 959 days China Is Quietly Trying To Distance Itself From Russia
  • 959 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 963 days Crypto Investors Won Big In 2021
  • 963 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 964 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 966 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 967 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 970 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 971 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 971 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 973 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

2012 Likely to Be Very Different From 2011

Regardless of what happens in the short-term (i.e. interim market correction of routine or severe degree upon completion of this sentiment-induced broad market rally), the analysis being brought forward in NFTRH over the last few weeks is painting a picture of a 2012 that could by year end, feature heightened inflation concerns as opposed to the deflationary ones that so predictably came about after the spring of 2011.

The 'continuum' (AKA the monthly view of the TYX or 30 year Treasury yield) predicted last spring that Bill Gross of PIMCO stood to be very wrong in his highly publicized Treasury bond short play. Another way to put it is that PIMCO was heavily 'long' rising interest rates at a technical point that had limited every rise in long-term rates over a span of decades. Was he going to suddenly make THE call and be right on this? Unlikely.

$TYX (30 Year T-Bond Yield) INDX
Larger Image

Enter one US congressional debt debate and one European sovereign debt meltdown and the US Treasury market was suddenly all the rage, as long-term interest rates plummeted. Enter the 'deflationists' that always come center stage at such times.

Whereas Mr. Gross was taking a big risk in being short the bond (long rising rates) near the 100 month exponential moving average (solid red line), the people buying the deflation story hook line and sinker, clinging to the US government's most long-term debt paper for safety, are now sitting squarely in the line of fire with respect to upside inflation risks as the TYX decides whether it is going to insert another green arrow at current levels.

Here is a closer look at the TYX in the form of a weekly view.

$TYX (30 Year T-Bond Yield) INDX
Larger Image

Let's just say that this looks like a bottom in the making for 30 year yields. Dialing in closer, the daily view below shows a move above resistance. While it is too soon to confirm this as a breakout, we can certainly see some risks to the 'declining interest rates' and deflation scenarios going forward.

$TYX (30 Year T-Bond Yield) INDX
Larger Image

Now, it is not as easy as just watching nominal interest rates and calling 'inflation' or 'deflation'. There are other indicators to use to look at this from as many angles as possible, including the various yield curves between long and short term Treasury rates. NFTRH171 took a look at the most extreme curve, the TYX-IRX (30 year yield to T bill 'yield'), for example. Its message was one of deflationary wrangling amid upward and downward spikes and massive volatility in 2011, while remaining in an upward trend over the long term.

This is a picture of accommodative policy making, the likes of which tends to bring on obvious inflation problems in the form of rising asset prices later on.

Then of course there is the hugely bullish sentiment toward the currency that denominates US Treasury bonds. Here is the latest view of the Rydex Strengthening Dollar Assets (compliments of sentimentrader.com), which is of course, bearish on a contrarian basis. 2011's refugees, many of whom were likely too long the 'inflation trade' last spring as inflationary fears maxed out are sitting comfortably in US dollars, convinced of coming declines in asset markets.

US Dollar Index
Larger Image

We have been fed so steadily a diet of the European debt crisis, the MF Global margin meltdown and unhealthy systems coming apart at the seams left and right. I do not want to minimize these threats, but if things go the way they have gone all along the 'continuum' at points when the majority were convinced of certain outcomes and eventualities, a set up is in place for something very different.

That would be the "Inflationary 2012" theme NFTRH is working on week by week. Risk has been managed rigidly throughout a challenging 2011 to the present time, and this year we look forward to the possibility of something very different, judging by this view of the US Treasury market, US currency and several indicators that are generally updated in NFTRH on an ongoing basis.

 

Back to homepage

Leave a comment

Leave a comment