Six Days Until Bond Market Crash Begins

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.

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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.

Read More >> The Bond Market Has Reached Tulip Bubble Proportions

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.

Red More >> Cushing and Gulf Coast Storage Filling Up Fast 

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!

Read More >> The Fed Waited Too Long: Here Comes Inflation

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?

Read More >> The Swiss 10-Year Bond Illustrates Central Banks` Flawed Monetary Policy

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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Comments

[TBT or not TBT]

I might or might not recommend this approach.   

[Gambit]

Yup, to be more specific FAZ is the symbol (it's short financials- fyi it's a leveraged 3x short) at the hight of the financial crisis it was trading at $26k + per share (I think it hit $40k at one point).. Trading at $13 as of today. Was up 5.5% today... IN FAZ WE TRUST

[Cycle]

The Fed killed the market's price discovery mechanism for capital and its ability to discount the future. The Fed and its balance sheet, as well as the US Treasury, are now as dependent on low interest rates for survival as the equity markets. And everything I've read out of the Fed research barns suggests that the Fed has absolutely no idea how to reverse the " Bernanke's thesis" experiment without risking an explosive collapse in bond prices.

[Squid-puppets a...]

now tell us how you really feel....

[HolyfieldsOtherEar]

My takeaway from this article is that the time to buy bonds is now.

[gdogus erectus]

Just think. One day, one of these guys that make the timing prediction is going to be right. Not many of us left that try that any more. The pain of repeatedly getting your face ripped off by predicting WHEN the collapse will come keeps one from coming back to the prognostication game.

But someone will get lucky with their analysis. And boy are they going to be hard to be around.

[NoPension]

I love it that they are forced into rate changes by "an overheated labor market" that anyone with two functioning brain cells knows is bullshit.
Talk about a catch 22, eh?

At some point, the piper will be paid. There will be an accounting.
I look forward to it like nothing else in this world, and when it comes, I'll most likely suffer and regret it like everyone else.

[daveO]

They ues BS reasons because the real reason is too honest. If they don't raise, folks will abandon the dollar. If they admitted this, more folks would get a clue.

[Greenskeeper_Carl]

i love the catch 22 they are in too. It cracks me up, the corner they have trapped themselves in. Their numbers point to a drastically improved labor market, unemployment has dropped down to near 5%, and GDP has posted some solid numbers as well, so if its all 'data dependent' like they say, they should have started incrementally raising rates a while ago. But, they know all these numbers are total bullshit, and its all a very fragile house of cards, but they can't admit to any of this, since it was reveal the farce for all to see.

[A Nanny Moose]

Paradox is a better term. Since a paradox does not exist, then the Fed needs to check its premise....but it will not....too many Touggue Speaking Economic High Priests running through St. Eccles Temple.

[bwh1214]

I don't think its going to happen in 6 days but it will eventually and this is a must know if it does:

http://www.debtcrash.report/entry/i-bought-what

and this one for anyone that says debt doesn't matter, I truely hate that:

http://www.debtcrash.report/entry/debt-taken-on-by-fools

[Oquities]

here's a thought -

Fed drives rates up, prints new money to buy Treasuries back at 50 cents/dollar, then pushes rates down again, selling purchased bonds into market at a profit.  could put a huge dent in Fed balance sheet this way.