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Six Days Until Bond Market Crash Begins

EconMatters's picture




 

By EconMatters

  

Run for the Exits

Today early in the morning,  realizing this was going to be a robust selloff in equities, the ‘smart money’, i.e., the big banks, investments banks, hedge funds and the like, ran to the old staple of buying bonds hand over fist with little regard for the yield they are getting paid for stepping in front of the freight train of rate rises coming down the tracks.



FOMC Meeting & Press Conference

 

Just six days away from the most important FOMC meeting in the last seven years, and another 300k employment report in the rear view mirror, this looks like an excellent place to hide for nervous investors who have far more money than they have grains of common sense. Newsflash for these investors, yes markets are over-valued, and you need to get out of Apple, and about 100 other high flying overpriced momentum stocks, but you can`t hide out in bonds this time.  That party is over, and next Wednesday`s FOMC meeting is going to make this point abundantly clear.



Cash is King

 

There is no place to hide except cash.  You should have thought about that before you gorged yourself on ZIRP to the point where you have pushed stocks and bonds to unsupportable price levels, and you keep begging for the Fed to stall just another six months, so you can continue to buy more stocks and bonds. Well you have done an excellent job hoodwinking the Fed to wait until June, you should thank your lucky stars you have done such a good job manipulating the Federal Reserve; but just like the boy crying wolf, this strategy loses its effectiveness over time.



Throwing another temper tantrum right before another important FOMC meeting hoping that Janet Yellen will be alarmed by these Pre-FOMC Selloffs to put off another six months the inevitable rate hike, this blackmail strategy has run its course.  The Fed is forced to finally start the Rate Hiking Cycle after 7 plus years of Recession era Fed policies by an overheating labor market.

 

Denial is a Powerful Drug

 

You knew this day was going to come, but most of you are still in denial.  What the heck were you buying 10-year bonds with a 1.6% yield five months before a rate hike?? You only have yourself to blame for the 65 basis point backup in yields on that disaster of an “Investment”. But really what were you thinking here??  That is the problem when the Fed has incentivized such poor investment decisions and poor allocation of capital to useful, growth oriented projects over the past 7 plus years of ZIRP that these ‘investors’ don`t think at all, they have become behaviorally trained ZIRP Crack Addicts!

 

But the Dollar is Strong, our Currency is holding too much of a store of its value

 


They can cry over the strong dollar, have a couple of 300 point Dow Selloffs, scare monger over Europe or Emerging Market currencies, but the fact is that the due date has come on your stupidity. You bought all this crap, and now you have to sell it! Well too freaking bad, boo hoo, you shouldn`t have bought so many worthless stocks and bonds at unsustainable levels in the first place.  Well the Fed cannot save you from your stupidity forever, and that day of reckoning has finally come, rates are going to rise in the United States of America!


 

D-DAY for Bondholders

 

Six more days and counting until all those hiding out in Bonds will start to realize that the Fed Funds Rate is going to be higher than their precious yield play of the worthless paper that they are holding onto for dear life.  Like a junkie in a state of denial with their crack pipe and there's no more ZIRP to save them from their poor investment decisions. You play with fire long enough, and eventually you get burned!

 


I have no sympathy for anybody who buys bonds at these levels, this isn`t sound investing, this is just pure stupidity.  The last six weeks we are witnessing just the first stages of this stupidity play out in the bond market. This backup in yields is just getting started here in the United States, the storm is really going to get dark once 10-year yields break above the 2.38% resistance level.  The stops alone are going to move yields to 2.7% on the 10-Year.  Then the fun is just getting started for all those stuck on the wrong side of this trade. In two years the Fed Funds Rate itself will be 3%, where do they think that leaves 10-Year Yields?


So Many Stuck little Sheep Bond Holders

 

The positioning for this inevitability is as poor as I have seen in any market.  The carnage in the bond market is just going to be gruesome, the denial is so strong, the lack of historical perspective of what normal bond yields look like, and what a normalized economy represents where savers actually get paid to save money in a CD or checking account. The fact that the Fed has so de-sensitized investors to what a normalized rate economy and healthy functioning financial system looks like is probably one of the biggest drawbacks of ZIRP Methodology.

 

The Federal Reserve, and now the European Union have set the stage for the biggest collapse in bond markets that will make the sub-prime financial crisis look like a cakewalk.  This is what is really going on in markets, investors who bought too many expensive stocks trying to get out before the FOMC Meeting next Wednesday.  But you aren`t going to be able to hide out in Bonds this time, better find another alternative because the clock is ticking on that trade as we speak!

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Wed, 03/11/2015 - 08:29 | 5876947 Shitgum Suicide
Shitgum Suicide's picture

Reading this article was like listening to Josh Earnest, just kidding but seriously is the translation if his name, tell us that the economy is great and the president is doing what's best for the country.

Did this author ever hear the CEO of Gallup call bullshit on the BLS who also feared a suicide by Shitgum for telling the truth?

How can anyone with ONE brain cell not see the reality of the conditions on the ground and see things aren't kosher in hopeyland?

Oh wait. That's right most of these fools still watch teevee and believe everything that cums out of it, including that Barry is doing a great job.

I don't know what's worse, listening to ignorance or outright propaganda

Now excuse me while I vomit out my ass.

Wed, 03/11/2015 - 08:17 | 5876939 Snoopy the Economist
Snoopy the Economist's picture

What crap this article is. The treasury rate will drop - not increase. Look around the world - Spain and Portugal have lower 10 yr rates than US.

Wed, 03/11/2015 - 08:17 | 5876938 Nimby
Nimby's picture

It is apparent that the strategy isn't a sudden collapse, but rather a gradual decline into mediocrity.  If people are used to eating steak and suddenly have to eat potatoes, the shock to the system will be devestating.  But if, generation by generation, you take their steak and give them pork, then chicken, then potatoes, they'll hardly notice the difference.
Therefore, I don't see the Fed or any of the banksters making any moves that will hold the potential for violent swings.  However, there are externalities that they will have to contend with, and a misstep can - and inevitably will - cause shit to get squirrely faster than you can say: "potato". 

Wed, 03/11/2015 - 07:24 | 5876845 nathan1234
nathan1234's picture

With Ukraine take over in trouble and     all plans in disarray TIME is needed.

So QE 4 will surprise .

Learn to expect the unexpected.

Wed, 03/11/2015 - 06:07 | 5876781 Panic Mode
Panic Mode's picture

Sounds snakeoil to me. Another article makes timing prediction, on the plus side at least only need to wait for 6 days.

Wed, 03/11/2015 - 04:19 | 5876725 Atticus Finch
Atticus Finch's picture

Does the dollar soar when the bonds crash? I sell all my bonds and get into dollars Or do I sell the bonds and get into what? I do not follow how the dollar crashes if everyone liquidates bonds.

Help me out here.

Wed, 03/11/2015 - 03:59 | 5876718 farmboy
farmboy's picture

Wow, This guy has been lost on the fact that bonds have been in a bull market for now 33 years and seems to ignore that. Raising rates will crash the economy, markets, banks, the whole geopolitical power of the USSA. I have no clue why this guy calls himself economy matters exept that his models are based on govt data that are bullshit. Garbage in garbage out you remember?

Wed, 03/11/2015 - 07:31 | 5876853 jharry
jharry's picture

Jim Willie says the fed won't raise interest rates because a rate increase would kill the multi-trilion dollar derivative markets.  I agree.

Wed, 03/11/2015 - 03:40 | 5876700 petedanels
petedanels's picture

OK this is what I bet will happen.  Fomc clearly says rates will not be raised, followed by the last market thrust to new highs, or to test prior highs...followed by a beginning to a beautiful and powerful bear market, filled across time with magnificent intra day bull runs!  These spikes will be like none we have ever seen in the midst of an angry push to the depths of hell.  It's to the monthly charts I am looking, as both prior all time highs of 00' & 07' clearly show a massive drop & pop just before their falls.  I will be trading during Asia hours then, the best market hours during a fiercely volatile market.  The currency futs are waking up, but not quite ready yet...for Asia hour trading I mean.  I can't wait!

Wed, 03/11/2015 - 02:27 | 5876661 Jack Daniels Esq
Jack Daniels Esq's picture

Impeach all 535 + ICiC for treason, fraud

Wed, 03/11/2015 - 02:06 | 5876647 GardenWeasel
GardenWeasel's picture

I stopped reading when I saw that the author thinks U.S. unemployment is at 5.5% - I can't read when laughing that hard, and I spit tea all over the monitor besides.   Rates may rise, but not because of a robust economy in the U.S.  They will rise because no one will buy our shit debt anymore unless duly compensated.   The Japanese will be selling to pay for their old folks pensions, and the Chinese... can you say de-dollarization?  And they will use it to try and say that they tried to stop the bubble from growing but the retail investors were overcome with irrational exuberance - or, the Russians did it - or, it was Bushes fault.  Something like that.

Tue, 03/10/2015 - 23:14 | 5876437 lawton2
lawton2's picture

I stopped believing anything when I read "overheated labor market"

Wed, 03/11/2015 - 06:36 | 5876793 JerseyJoe
JerseyJoe's picture

I read no further.  Amazing what people believe out of da gubamint.

Just remember O-No put a card carrying commie to run the numbers at BLS.

Wed, 03/11/2015 - 06:11 | 5876782 globozart
globozart's picture

Another contributor here goes the phoenix way, or maybe I did not notice before.
At least some good ones are left.

The only reason I think they might raise rates again at some point because they profit as well on the way down. And the track down is usually a steeper one, meaning more price movement in a short time period. If you got the phonecall everthing is well.

But how knows when this will be, except the guy on the other side of the line.

Tue, 03/10/2015 - 23:11 | 5876425 celticgold
celticgold's picture

Nix ...it will be a PANIC driven recovery

Tue, 03/10/2015 - 22:51 | 5876361 TexasDan40
TexasDan40's picture

So when the dollar is strong, and bonds yields are low, when the interest rates are forced to rise and the dollar collapses, what happens to equities and gold.

Seems that any commodities will rise...wood, ore, copper, oil, gold, ...food.

Right?

So will commodity based equities rally?

Tue, 03/10/2015 - 23:38 | 5876489 zeropain
zeropain's picture

dollar just woke up.  it has not got an erection yet and it probaly will not cum for a couple years.  massive deflation coming to teach the world markets about moral hazzard.  dollar up everything else down, but then we can rebuild.

Tue, 03/10/2015 - 23:57 | 5876326 dexter_morgan
dexter_morgan's picture

Feb. 1928 - Montagu Norman travels to US to meet privately with FRB officers, likely about bursting the speculative bubble in US stock market. Andrew Mellon states "liquidate labor, liquidate stocks, liquidate, the farmers, liquidate real estate"  the only way to get the speculative fever out of their blood was to let the market collapse. Warning duly issued to the banksters and they took cash positions. August 9th, the discount rate raised to 6% . Securites market peaks on Sept. 19, and people BTFD all the way down until Oct. 24th when TSHTF and $40 billion of wealth disappears over the next several months.

So, as Curtis Dall said, it was a calculated 'shearing' of the public by the World Money Powers. And many fortunes were made buying otherwise sound securities for pennies on the dollar by those that had the cash - the ones that were warned. 

From 1922 on the Fed was moving money, followed by gold, out of the country to Britain - the bankster motherland. Even Kennedy stated 40 years later the outflow of gold "did not come about by chance".

So, here we go likely again folks.

 

Thu, 03/12/2015 - 09:19 | 5881085 TheReplacement
TheReplacement's picture

Yeah but this time we gots nukes.  Fuck 'em if they can't take a joke. 

Tue, 03/10/2015 - 22:21 | 5876265 educated
educated's picture

somebody is short bonds and thinks yields should rise. They can't. They will fall and short term notes will be negative yield in the future.

Tue, 03/10/2015 - 22:15 | 5876242 Turin Turambar
Turin Turambar's picture

LOL, rates will never be raised until AFTER an orchestrated collapse.

 

Tue, 03/10/2015 - 22:09 | 5876219 dexter_morgan
dexter_morgan's picture

Off with the banksters heads!

But they're marching to Bastille Day
La guillotine will claim her bloody prize
Free the dungeons of the innocent
The king will kneel and let his kingdom rise

https://www.youtube.com/watch?v=FyTu-YUEzMQ&t=49

 

Tue, 03/10/2015 - 22:14 | 5876241 dexter_morgan
dexter_morgan's picture

Speaking of guillotines, where has kchrisc been? Miss his comments.

Tue, 03/10/2015 - 23:17 | 5876453 Augustus
Augustus's picture

Probably shopping in Ferguson.

Tue, 03/10/2015 - 22:05 | 5876198 joego1
joego1's picture

Nonsense, nothing bad can happen until Hitlery is firmly in control of the planet.

Tue, 03/10/2015 - 21:58 | 5876180 Comte d'herblay
Comte d'herblay's picture

It's nice to read something with strong conviction AND giving the exact timing!!

Is that you, George??  

Tue, 03/10/2015 - 23:56 | 5876521 dexter_morgan
dexter_morgan's picture

Reminds me - tomorrow is March 11, possibly a date on the cryptic Jan. economist cover. Don't know if we'd recognize an event or hint put out there for the cabal, but we shall see.

Wed, 03/11/2015 - 03:01 | 5876678 StychoKiller
StychoKiller's picture

The anniversary of Fukushima's meltdown(s).

Tue, 03/10/2015 - 21:57 | 5876175 Playtime's Over
Playtime's Over's picture

ditto

Tue, 03/10/2015 - 21:56 | 5876171 Playtime's Over
Playtime's Over's picture

I think that is an almost universal feeling. Just waiting for the shit show to end is painful.

Tue, 03/10/2015 - 21:56 | 5876169 TheAntiProgressive
TheAntiProgressive's picture

One thing you can be sure of if they indeed increase the interest rate, the effect on the politicians is going to be pure carnage.  They were and are squacking continuously about the sequester and what they have had to cut and this "adjustment" will make that seem like a walk in the park.  The Pols will then have to face wholesale resurrection by all the voters, the majoprity, who simply have not paid attention one iota.  They thought everything was under control by the central planners in DC.  It isn't.  They Pols are clueless sock puppets of the banks and can't possibly comprehend the tidal wave they are facing.  The voters will then want retribution and to place blame and since it can't be the clueless voters, they will look to the fine elected folk.  The only place the Pols will then move is for a massive national distraction like a nice big shooting war.  Not this ISIS distraction thing, something really, really big and then folks, all bets are off.  Since this is all relatively stark they will a.) not do it.  or b.) do it and quickly rescind it before they get hung from trees by the population.  If indeed they do it and the derivatives market implodes and all that entails, it will become real apparent that the pols planned dumping of the banks derivative liabilities onto the shoulders of the US taxpayer during the Cromnibus pass through will probably still point to some serious, serious violence and retribution.

Tue, 03/10/2015 - 22:08 | 5876209 Duc888
Duc888's picture

 

 

 

 

Nothing on planet earth will make me jizz my pants faster than seeing all government workers lose their pensions.

Tue, 03/10/2015 - 23:39 | 5876493 neidermeyer
neidermeyer's picture

Me too Duc ,, I had to enter a city gov't office today and go through security ,, give up my ID , metal detector , empty my pockets , declare exactly who I was going to see... The full Kabuki theater of pretend security... meanwhile a city worker goes around the line with a stack of computers on a trolley... he could have had a dozen handguns and a satchel of grenades hidden in the cases,,, he didn't even slow down to say hello to the pretend security,, and it's always the employees that go off and kill their co-workers... he's the threat! ... Then of course once inside I see desk after empty desk ,, I guess they're all out on their 3 hour lunch hour driving their city vehicles... If only I had the patience and the lack of ambition to have become a paperwork stamper for any agency I'd have a pension , a salary double what I'm worth , a city car and 3 or 4 weeks of paid vacation and 2 weeks of "sick time" ...

Wed, 03/11/2015 - 03:28 | 5876685 dolbiere
dolbiere's picture

vicki? vicky, santa monica.

Tue, 03/10/2015 - 21:31 | 5876079 kenny500c
kenny500c's picture

Same old song we have heard forever it seems like. If the Fed were to raise short term rates with the economy barely keeping its head above water the 10-year note (yes they are notes, not bonds) would head below 2% post haste.

Tue, 03/10/2015 - 21:31 | 5876076 semperfi
semperfi's picture

there will be no rate hike:

1. bond carry trade life support for banks (along with narco $)

2. interest rate derivatives

3. US debt service

just to name 3 reasons why ZIRP for-eva

 

Tue, 03/10/2015 - 21:26 | 5876058 Milestones
Milestones's picture

Who gives a crap about blame; there maybe no one around to read it.              Milestones

Tue, 03/10/2015 - 21:16 | 5876024 tarabel
tarabel's picture

 

 

I'm not into bondage, but from what I have read around here it seems that countries drop their interest rates into negative territory to discourage investors from putting their funds to work in bond X.

We read about how hard it is to find counterparties for USD swaps, which tells me that nobody wants anything other than dollars. Which equates to an overstimulated demand for dollar instruments.

In addition, the reverse giant sucking sound that would come from EMs in the event of Fed rate hikes would make everyone forget about the Domino Effect in SE Asia.

US deficit financing costs would spike.

So, if there is any Fed move to be made, it seems that a drop in interest rates would be more in the cards than a rise.

King Dollar does not need to pay a premium for foreigners to stash their cash here.

I think they are trapped between the best interests of the US economy and the best interests of the world economy and we know which choice they are always going to make. Particularly now, since the assumption is that the US is recovering and can therefore take more of a hit than everyone else. The usual storyline, in other words.

No interest rate hike in six days. Maybe not in six years either.

Tue, 03/10/2015 - 21:14 | 5876008 Sorch
Sorch's picture

And that is exactly why they wont do it. Raise rates that is, or if they do it will be .1% or similar tokens over years to move everyone "gently" out of these positions.

 

Gahh, i'm stupid i'm thinking that they may understand market theory and arn't driven by politics...forget what i said :P

Tue, 03/10/2015 - 21:00 | 5875962 UnpatrioticHoarder
UnpatrioticHoarder's picture

If the Fed does this, they are going to bring the whole house down around them. It's not out of the question, but if they do pull the trigger, they are going to have to take extraordinary measures to prevent a market crisis becoming a National Security crisis as the T-bond market goes into meltdown. They already manipulate bond rates using trillion-dollar swaps, yes, but won't that become impossible to control if they reverse course? So then a wider crisis is inevitable, and the US goes to a massive distraction, like an overt war against Russia in Ukraine? Is the Fed really going to pull the trigger considering the much wider consequences? Wouldn't it be better to wait for China or Russia to make the first move and be able to blame them?

Tue, 03/10/2015 - 21:22 | 5876043 SHRAGS
SHRAGS's picture

Trillions, more like hundreds of trillions to suppress interest rates.  From the latest OCC report: http://www.occ.gov/topics/capital-markets/financial-markets/trading/deri...

 

Notional derivatives increased $2.6 trillion, or 1.1%, to $239.3 trillion. Derivative contracts remain concentrated in interest rate products, which comprise 79.8% of total derivative notional amounts. Credit derivatives, which represent 4.4% of total derivatives notionals, declined 3.9% from the second quarter to $10.4 trillion.

 

 Archived reports: http://www.occ.gov/topics/capital-markets/financial-markets/trading/deri...

Thats just the top five NY banks.

 

The BIS shows 563,290 Billion (563 Trillion ) notional OTC interest rate as of June 2014 http://www.bis.org/statistics/dt21a21b.pdf

(BIS derivatives stats home: http://www.bis.org/statistics/derstats.htm

Don't worry, I'm sure it will all net out.

Tue, 03/10/2015 - 20:54 | 5875948 Seasmoke
Seasmoke's picture

Gold. How many times before they going to get it. 

Tue, 03/10/2015 - 21:08 | 5875993 battlestargalactica
battlestargalactica's picture

And the stuff that keeps the werewolves away, too. Sadly, I lost mine in a recent boating accident on Straits of Yellen

Tue, 03/10/2015 - 23:01 | 5876391 tarabel
tarabel's picture

 

 

I thought garlic floated.

Wed, 03/11/2015 - 02:56 | 5876676 StychoKiller
StychoKiller's picture

Meh, garlic is for Vampires.

Tue, 03/10/2015 - 20:53 | 5875943 asteroids
asteroids's picture

How would you short this?

Wed, 03/11/2015 - 21:57 | 5880123 beachdude
beachdude's picture

Or TMV which is 3X short.

Wed, 03/11/2015 - 00:01 | 5876529 eyetaliano
eyetaliano's picture

TBT

Direxion has a couple of leveraged short ETFs

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