"No One Gets Rich Betting Against The Market - Until The Moment The Market Is Wrong"

Tyler Durden's picture

Via Bill Blain of Mint Partners,

There a couple of good reasons to be more than moderately concerned about what’s happening in the fixed income space. Once more my gallant crew, we are sailing into choppy waters... which may mean trouble ahead, but it also spells opportunity! Two things concern me:

Firstly, despite global easing, global bond yields have backed up last few days. Immediately the Fed gets the blame with rumours they may scale back QE – which is reactive nonsense. The Fed has made clear we need to see clear evidence of growth, not just hints, before they change course. But the Treasury market is off across the curve. JGBs, Gilts and Europe are all higher last few days.

Is this a buying window after some mild panic, or has something really changed? Higher government yields don't fit with the thesis coordinated global easing from US QE, Japan Reflation, and ECB peripheral bond support will further fuel an asset grabathon.

Particularly worrying is the Japanese reflation package appears not to be working as predicted - it has caused the Nikkei to soar (next stop 16k!) and the Yen to weaken (through 102 and 110 in prospect), but it was also supposed to lead to a flatter and lower Japan yield curve. Instead we are seeing a massive bear-steepener in JGB yields.

The steepening is particularly relevant at the critical 2-5yr sector of the curve. This is where Japan banks hold their exposures:  some US$ 1 trillion 70% in JGBs and 30% in US Treasuries (which is risk!). Steeper yen curve triggers concerns bonds are in sell-off mode and a steeper dollar curve... Wider bond spreads in US$ trigger concerns on Europe – turning sentiment weaker.

There is so much folk have missed about the critical importance of the current Japan/Yen games in terms of global markets. The fact Japanese investors did not immediately start buying foreign assets was wrongly interpreted as proof it wasn't going to happen - conveniently ignoring the Golden Week fortnight and the fact Japan buyers were wrongfooted by the scale of BoJ intervention and needed to build a new consensus on new investment approaches. Now we are seeing Japan investors in foreign buy mode.

Similarly, the BoJ’s new QE buy programme is aimed at flattening the Yen curve, buying the long end and short. As we’ve said before.. don’t fight Kuroda. But that’s not the way the current steeper curve looks to nervous investors. Hence the fear in today’s market and the pundits screaming buy stocks. Is this a fundamental turnaround point? Or is it too early to call? (Happy to talk about each market anytime.)    

The second issue with the market currently is that global rates are so low the market is losing the will to live/play. When highly speculative CCC names yield less than 7% what's the point in investing? The risk-reward is just too skewed toward higher risk over lowering returns that it simply makes little sense to take.

One big fund in the more alternative space told me Friday “our buying interest has pretty much dried up of later – we’re not being paid for credit or liquidity risk, so it’s hard to justify doing much.” And that view is being echoed across asset classes in the fixed income sector. Again this fuels the “what’s the point in running further risk in bonds.. let’s move into stocks” calls of the market!

No one gets rich betting against the market, UNTIL THE MOMENT THE MARKET IS WRONG. And as we know the market is a pernicious beast that delights in nothing more than wrong-siding the maximum number of people with the maximum losses. Which doesn’t really help much.. is this the moment to buy more bonds on the slide or is it the start of something more significant and a shift out of bonds?

I think its worth paying attention to what’s happening re the JGB curve.. if/when it flattens, it’s a global buy confirmation. You want to be ahead of it.

Take a quick look at Gold this morning – after Friday’s weakness, the sell off continues. But gold volume in Asia is up (nearly double on COMEX futures), despite the apparent absence of global inflation and the dollar’s resumption of core global value yardstick. What does this tell us? Concern factor is very much there.

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LawsofPhysics's picture

Please, 85 billion per month, soon to be 120 billion, soon to be 300 billion, (not even counting other CBs), the "market" is not going to be wrong anytime soon.  There is a "bid" under fucking everything.


Long black markets and sharecropping as scarcity become a real issue as everyone starts trying to take delivery of, well, everything...

The fucking liabilities and debt hasn't gone anywhere folks.  So many paper promises, so little real assets and collateral...

Rubicon's picture

"So many paper promises, so little real assets and collateral..." amen

flacon's picture

@Rubicon, that's the truth. Everything works at the casino until there is a lineup at the "Redeem Your Tokens Here" booth. Then the lady behind the counter says: "We ran out of cash. You can come back tomorrow. Tokens are as good as money."

THX 1178's picture

@Laws of Physics. You are right until you are wrong (just like everything else in economics/finance) Wile E. Coyote is in a state of 'not splatting' on the ground until he splats on the ground. The fed cannot print money forever:

1. If the Fed Continues to print money or increases the amount of money printed monthly, bond holders are encouraged to exit bonds for something of higher return. Bond exit = interest rate spike (unless of course Fed buys them all up which it will)

2. But if the fed is the sole buyer of US debt then we are looking at a runaway inflation scenario, which will have to be combatted by an interest rate spike. The fed will have to dump bonds at this point (otherwise people will be flooding into the streets demanding answers.)

3. If the Fed sells debt in competition with the treasury, interest rates spike, money leaves the economy to pay additional interest... stock market tanks and derivatives get triggered. Kaboom.

4. Prices of precious metals are suppressed to keep fiat ponzi going and of course, when you fix prices below fair market value you create a consumption boom followed by a supply shortage. We all know Comex and LBMA dont have the metals in their vaults. If they start delivering paper instead of metal, there will be a run on bullion and precious metals will spike.

5. But in reality, precious metals are not spiking but purchasing power of the dollar is falling. This purchasing power is falling presently, so there really is no support under the Dollar, or the economic system.


It won't last forever. The Central bankers cannot keep this going indefinitely. Not this time. And with precious metals taking that hit recently, and vaults across the world being drained... I estimate that our time in this here equilibrium is about to dry up.

CrimsonAvenger's picture

It's hard to overstate how damaging a bump in interest rates will be. Savers will be happy (are there any left?), but home sales tank and the fed deficit explodes. They really have to go all-in at this point on keeping the rates down.

Sofa King Confused's picture

My father told me, when I first started investing back in the 80's, that stocks may go up and up and up, but, eventually they must give into gravity.

W T F II's picture

You are not correct. There is really NO depth of bid under anything. Perfect conditions for a flash crash

LawsofPhysics's picture

Bullshit, the printing/monetization/POMO is a very real bid.  Provide evidence to the contrary or shut the fuck up.

BLOTTO's picture

Wait until they release the 'X-Factor' Event on us...the kind you cant research, chart or analyze...

Doña K's picture

Starve the rats. Put the lid on investing. Let them buy and sell to and from each other.


Herd Redirection Committee's picture

There seems to be  a real push in the last couple days to convince people the market is about to turn around (Hilsenrath, various posters on here, etc.) and crash.

All I can say is, I think you are more likely to get gobbled up, than time it perfectly. 

All the "It can't go on" talk just seems primed to get the next round of shorts to commit, and then pull the rug out from under them.  Anything is possible, and obviously the market is overvalued (or, the market is signalling severe USD depreciation in the coming years)

Winston Smith 2009's picture

That which cannot continue indefinitely won't.  However, exactly when the hammer will come down is not knowable.

tmosley's picture

There are reletively few institutions participating in the program, and those institutions may act against the Fed, since they are not the same.

It could happen.  That doesn't mean that it will, but the probability is non-zero.  I'd say it's not even less than 1%.

LawsofPhysics's picture

The unfunded liabilities remain, you either re-structure the debt, eliminate the debt (jubilee) or reduced your liabilites, period.  These are the only options (aside from chaos and death of fiat of course).

WhiteNight123129's picture

Of course it is a real bid, but for every bid there is an offer.


mayhem_korner's picture



The flow of currency underlying the bids is not going to fail.  So the bids will be there.  But if the faith in that counterfeit currency fails, the bids won't matter and we won't be talking "flash crash".  We'll be talking dollar DOA and the most massive reallocation of wealth in all history.

fourchan's picture

...to china, thanks to nixon kissinger and the trilateral commission. 

Herd Redirection Committee's picture

If there is no enemy, you have to create one.

Same as, when things get serious, you have to lie.

I sometimes stop and wonder if people in China ever wonder where those factories came from.  Literally, where was that factory, before it was opened in China. What are those people doing now?  Will that happen to me?  (the answer is yes, but its still 15 years from manufacturing leaving China en masse IMO)

kito's picture

@ laws....what about all of the bad bank debt swept under bens rug???? Is it a liability if its no longer a "liability"????

mayhem_korner's picture



Unless the sheep still buy into the dollar when it's devalued to triple-digit monthly inflation, those "liabilities" on the Fed's balance sheet will never again see the light of day.  Just as intended when they were moved there.

Hedgetard55's picture

No longer a "real" liability, merely a "nominal" liability. The tab was picked up by holders of cash and cash equivalents through purchasing power debasement when Ben printed the $ to buy the assets.

LawsofPhysics's picture

It is not a liability as long as no one demands to be paid.  CDS, where money/debt go to die...

As I have siad before, many ways to destroy "capital" these days.

WhiteNight123129's picture

Here the deal.

Debt is a promise to deliver money at given point.

The Fed trumps this definition by rolling-over indefinitely.


Winston Smith 2009's picture

"The fucking liabilities and debt hasn't gone anywhere folks. So many paper promises, so little real assets and collateral"

Exactly.  By far the biggest house of cards in history that's worldwide to a greater extent than ever before, all held up by central bank debt creation that can't be withdrawn without causing the whole rigged mess to come tumbling down.

WhiteNight123129's picture

The debt has vaporized in the Central bank and against that out of this magic box came out new created money. So so excess debt gets in the magic box and some excess base money gets out of the magic box. Follow the logical conclusion.

That is a negative duration environment.

emsolý's picture

We need Minsky's Second Moment

Legolas's picture

The headline is spot on.  Anyone putting money into markets these days is simply betting.  Nothing more.

oddjob's picture

Allocating capital based on luncheon agendas is not betting, its just dumb.

dolph9's picture

There's no such thing as the bond "market."  Even in equities, as corrupted as they are, there is some background real market activity no matter how small.

All bonds eventually end up as Treasury debt, and all Treasury debt is monetized by Bernanke's digital printing press.

As such, prices will never stop rising and yields will never stop dropping until the whole thing blows up in default or hyperinflation, and then that's the end of the experiment called the United States.

LawsofPhysics's picture

Correct, the liabilites are very real and still there, you either restructure the debt (dare I say hard default), forgive the debt, or remove (kill) the liabilities... same as it ever was.

yogibear's picture

Agree. Depends on which one. Probably why Bernanke will not continue. He knows what's coming. I would lean towards the hyperinflation end. 

Those that hold hard assets would end up better off. Loans would instantly become less, priced in yesterday's dollars.

Herd Redirection Committee's picture

I heard the businessmen (besides Oligarchs) who did well during Russia's chaos were, for e.g., car salesmen selling on consignment.

Consignment during hyperinflation, good work if you can get it.

SheepDog-One's picture

No, not 'until the 'market' is wrong'...reality comes crashing back in whenever it suits the bansker overlords to go all short and pull the rug out again.

Herd Redirection Committee's picture

Exactly.  W/ manipulated markets this is an important distinction.

LawsofPhysics's picture

The ten-year yield is holding above 1.9%, go ahead, let it rise to 2.5%, I double dog dare you.  Stupid fucking puppets in CONgress.  How are we gonna continue to fund the MIC, the debt, and all those liabilities should yields go to 3.0% or higher.  Stupid fucking sheep.

dick cheneys ghost's picture

What they cant print they will STEAL....the Neo-con Imperial ambitions of this country take precedent over everything else

WhiteNight123129's picture

Are you talking about real rate increase or nominal?

If inflation rise by another 2%, actually the 10 years yield 2.5% are easier to repay than today.

It is like a treadmill, even if the you run faster (higher interest rates) but the speed of the treadmill increases even faster, (the inflation), that you move backwards not forwards.

Same thing with interest payments, if inflation increases faster than nominal yield, teh debt is easier to repay (it moves backwards) despite the nominal interest rates accelerating.



100pcDredge's picture

'The Market' in so far as one would want to speak about 'a market' is always right.

And it really exists, 'The Market', deep in the eh... somewhere. Maybe over the rainbow?

Mike in GA's picture

Kyle Bass said (appx 4-5 mos. ago) a 200 basis point rise in JGB yields effectively wipes them out. 

So, what, another 2 weeks?

Does anyone else get a sense that the train is accelerating?

AynRandFan's picture

Yes.  The Japanese situation is the only real thing that is changing.  Gotta figure that a collapse of the JGB market will swamp every financial market like a tsunami.

HulkHogan's picture

Could you imagine the 10% drop circuit breakers halting trades across the market on the hour, every hour. Those circuit breakers are going to cause more panic than they are meant to stop.

Tinky's picture

Oh yes, it's accelerating, which leads to this question: Is the wall towards which it is directly heading softening?

Doña K's picture

The answer is the same to the question of "when you stand on an icy sidewalk, do your feet get colder or the sidewalk gets warmer?

kito's picture

No way the fed and/ or worlds central banks let jgb yields rise to the point of danger....they just won't let it happen.....

Vooter's picture

Gee, you're right--bad things only happen to other people...

kito's picture

oh vooter, dont you know??? we live in UTOPIA now.......there are no more recessions....there is always growth......its all so perfect now thanks to the worlds cbs.......you will be waiting a while if you seriously think tptb will just let japans yield rise to the point of overt insolvency...................NOT GOING TO HAPPEN ANYTIME SOON.......

Vooter's picture

"you will be waiting a while if you seriously think tptb will just let japans yield rise to the point of overt insolvency...................NOT GOING TO HAPPEN ANYTIME SOON......."

But that's the BEST PART! Watching the monkeys frantically running from hole to hole in the dike, trying desperately to plug the leaks, only to be eventually and inevitably overwhelmed, and then rounded up and gassed...all the fun is in watching TPTB lose their P! And they always do...

kito's picture

i hear ya............but massive global cb coordination is a powerful thing.........and not to be underestimated.................

WhiteNight123129's picture

The point of danger is when it rises too fast, otherwise it can rise slowly for years no one cares, as long as the rates are not too negative in any given year.

If you want to sodomize the Japanese retirees, buy DXJ. The Japanese gov has decided to pay you to rape the retirees.

Japan gov has decided to sacrifice teh old generation (inflate away the debts). The young have no savings.

What a wonderful job is mine \ sarc...

nomorebuyins's picture

If you get rich betting against the market, your money will simply vanish.