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Step Aside Gold: There Is Something Else The Hedge Fund Community Hates Even More
Over the weekend, using the latest Commitment of Traders data, we showed something gold-traders had been aware in recent months (and years): "having closed lower for 8 of the last 9 weeks, gold has become the momentum-chasing hedge fund community's latest target.... Managed Money added to its already record short position in gold futures this week, pushing the leveraged bets to the most extremely bearish in history."
But while the fear and loathing of gold by the "smart money" and central banks has been extensively documented in recent years, another asset class is emerging as the "most hated" within the speculator community: treasurys, or rather, duration.
Here is what Deutsche's Dominic Konstam says when looking at the latest CFTC net spec exposure:
Positioning in the speculator community is clearly in flattening with a heavy concentration in 2s and 5s. The overall position is bearish duration. This suggests that flattening is less straightforward than say early 2015. It would be consistent with a bearish resteepening out to 10s, where positions are relatively flat. In real money positions we also still observe a bearish bias with a marginal preference for flatteners, but this is small.
Here is DB's representation of this broad negative sentiment:
Here is another way to show the net US Treasury futs position in 10Y equivalent terms.
To be sure, this is not the first time that the hedge fund community has been extremely bearish US Tsys: at the start of the year we showed "The Two Most Crowded Trades As We Enter 2015" - one was long the USD, the other was short Treasurys.
Since then the positioning has gotten far more extreme, with the "Long USD" trade now over three times more crowded than the next most popular trade as shown last week...
... while the negative sentiment on duration across the curve is now the greatest since mid-2010.
What is the implication? Perhaps that despite all of its recurring mistakes and declining credibility, the smart money refuses to fight the Fed, and is positioned just as the Fed would suggest (recall that when it comes to the short-end at least, "this is a market by decree"). This is also its biggest error as time after time the Fed's desire to telegraph a recovery (either by communication or by reflexivity) has been proven wrong, in the process wiping out all those who were positioned for a far steeper curve, one which would presage an economic recovery driven by the banks.
It is also perhaps why despite the Fed's rate hike, the 10Y is now precisely where it was at the beginning of the year: after all virtually anyone who could have shorted the long-end, already has. Instead, what happens periodically is that any time there is a Fed-credibility crushing moment - and this year there have been many - the shorts unwind en masse, and send the yield on the long end plunging.
What does this mean practically? Back to Konstam: "Together positioning does suggest that the investor community is generally underweight duration, which limits the extent to which investors should be bearish."
And yet bearish (on duration) is precisely what the Fed would want the investor community to be positioned, and because of that the real "max pain" risk will be when the Fed is forced to acknowledge it was wrong once again, and halt the just unleashed tightening (whether or not the US economy will be in a recession then is unknown). It is then that this huge curve/duration short would be unwound, and considering the illiquid nature of the Treasury market, could make anyone positioned inversely to this second "biggest consensus" hate trade very rich on very short notice.
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I don't think they really understand what they are betting on, but doubling down on doomsday sounds like a money maker.....
Fuck paper, and all the hedgies who rode in on it. It's all prone to burning.
Hah ha ha ha ha....
Little do these guys realize that The Morgue has been building physical for their own position ... Or are they ignoring such?
And for some reason they think they're exempt from being run and stopped out by the likes of Goldie and Morgue?
A lotta shorts goes a long way when the world turns on a dime and the big money dealers are behind the raping.
Just sayin', if the world is as we here think it is, then gold and duration are gonna be the places to be.
So many times in history, I think, groupthink runs away with the crowd.
But not just big events, how many times have we individually within the business and sports and ... have we been able to stop obvious idiocy? Once in a while, I see it, but fads go through science and medicine and rational discussion early on doesn't often stop them.
I bet it is scale invarient, the size of the various fads. Many chia pets, not many hoola-hoops. Many local cases of bad investment, few clusters, very few CB run-away inflations. Same psychology, same people, same phenomena.
Same ability to learn from the past, also, or marketers are always ahead of the kids, is proably more accurate.
In fact, is there any evidence any subset of humans who have been superior in general thinking skills? Just now reading "Evolution of everything", so many examples of very prominent scientists being ignorant and foolish simultaneously. There are many equivalents going on now. If our history teaches us one thing, I think that thng is we don't know much about thinking well. WWII is a fine example.
If we had learned anything from WWII, it is that people don't predict their own futures well. Yes, big events were happening, but the people driving those big events predicted pretty much nada about the effects on their countries and on themselves, so it isn't a good defense of civilization's ability to control its own future.
Israeli-Neocons are just the latest incarnation of the old formula of 'make them hate, own their souls'. And the fact that we don't know that is such an indictment of our religions. I was going to blame te public schools, but those are entirely our own fault. Past broken and going downhill for 50 years and you still haven't caught on, America.
You cannot turn your children over to institutions, what did you expect? Strong and independent minds? You get rebellious and anti-intellectual of a peculiar sort. The relentless simplicity can't all be hasbara, tho I hope it is.
Watch JPM, GS is merely their errand boy......
King Doller! (or as Mr Lennon Hendrix used to say here, King Doelarr).
What horseshit people "believe" these days. No worries brah, it's all good.
A bunch of bears are going to get burnt as the curve continues to flatten an the fed inverts the curve. The ten year will be sub 1% and I'm not selling until it hits that point. We are Japan hedgies.
You and me Doc, you and me.
In fact, this information makes me feel all the better.....
Once upon a time, all the shorts got covered and .....
Ok, so do i hold my long bonds until they hit 2% ???? I really need to know this because it's over half my retirement fund and I'm 61..........
Seriously, I need to know the answer to this.
Look no further than Japan or Germany to see the future of treasuries. Do you really think that Italy or Spain with no printing press should have lower yields on their ten year than the U.S?
http://www.tradingeconomics.com/bonds
hahahaha....oops...sorry...only two things that you can be certain of
1. your quality of life at age 91 (+30 years) is unlikely to be such that you give a rats ass
2. the government will never ever pay back its debt, so you need to worry about being able to sell the bond at some point.
keep in mind that if you buy a 30 year bond at 3% and it goes up or down 1% in yield, you stand to gain or lose 25% of your capital. the US is in default now (it has no intention of paying back debt) so the correct yield for a 30 year bond should reflect the credit risk of a junk bond borrower and should be closer to 8% than 3%.
just saying
Now why the fuck are you taking the fun out of this guy's retirement dreams?
my bad... let me see if i can kick my own ass ;)
Negative Duration is a nondiscriminatory financial phenomenon.....
It transits the globe freely, without hesitation and doesn't give a rat's ass if anybody thinks they're exceptional.
I hold a piss-load of long treasuries and municipals and I sure as hell ain't selling.
I still have some what used to be creme de la creme AAA long munis bought at 100 with 5% coupons.... Looks good, no?
Well, long 3% Treasuries are gonna be stupendous when everything else is trading at 1% or even -1%, etc.
I marvel how the CA munis are considered to be such a "safe" place to park money/savings.
Bizarro World to say the least...
CA muni's got by on the skin of their teeth last time around, with the Twatter/defense industry ramp up saving their collective asses. We'll see next time around.
I am embarrased to say it but I also own $158,000.00 of the Chicago Public Teachers Pension Fund.............courtesy of my Merrill Lynch "broker" in 2006....................I can't even get a bid on them today.
My Guess was Silver or Oil.
Here in Casa Grande AZ gas was $1.53 a gallon.
Soon both gas and silver will be given away for free.
I just realized that Windows Technical Department will never be able to hire Indians.
There are some organizations in the world who need to hire new script writers.
Just a little while longer and everyone will be on the same side of the boat, then hordes of panicked foreigners wiil rush into the "safety" of USTs and the short squeeze can begin.
Another point: Is "community" really the right word to use when refering to the co-located, front-running, sub-pennying, HFT, OPM, 2-and-20 hedge fund pack of lying jackals?
City Gravitrons
City people, the middle class disconnected from nature, are employed to consume natural resources faster than nature can replenish them, to create artificial scarcity inflation, with monetary policy hiding the difference, until it can't; it's a counterweight on a fulcrum, maintained by real estate control. Planting pot instead of tomatoes, shipped across the ocean, is a really stupid thing to do, but that's empire. The counterweight convention, however, has application in space travel, building temporary bridges.
The empire model distributed humanity across the planet, but cannot bring humanity into equilibrium. Being able to live off the land is far more effective, but the empire owns the land, by majority vote, taxation and police power, to protect and serve empire order, with fiscal policy. The empire requires demographic acceleration to maintain its actuarial financial ponzi, which can only fail, so History repeats, with a new dress called government.
The simple fact of the matter is that those parents capable of raising productive children must be paid to do so, and is paid, by nature, in the form of distilled DNA. The moment talking heads start talking about equal rights/outcome for single people, pretending to be married or not, colored or not, the financial system can only short into discharge. Family Law, with no due process, simply swaps the two in and out, to confirm common law feudalism in both directions.
Every nation/state on this planet is built upon feudalism, regardless of government mythology, and they all employ Family Law as the transmission mechanism, some more smoothly than others. The empire has simply run out of space, and is herding populations in circles, until they die, distill, or produce additional resources for empire consumption, which is the 'civilized' form of war. The fantasy of a new world order, public healthcare breeding and public education programming, will kill you if you let it.
Whether Tesla was a zealot, before his time, or set the foundation depends upon perspective. He wired up Chicago, the technology was replicated efficiently from the top down, and has traveled backwards toward Edison ever since. The US Government is no more effective than Russian Government, because the only difference is the language dressing feudalism, social event horizon durations.
The middle class chooses the temporal stability circumscribed by government certified specialties. Labor can and does specialize, but is capable of traversing the system, changing the focus, at will. Capital controls an always dying empire on one side of the fulcrum, with money and media, until modernization is required.
On the other side of legacy's mirror, over top the fulcrum focus, in multiple dimensions, is where the work gets done. Legacy and the middle class only see the dc circuit. The other mirror connects both ends, to transmit ac.
Net, you have an ac multiplexer with dc event horizons serving as the gravitron, setting up the frequency motor generator.
As the middle class chases arbitrary legacy capital rules in aspiration, down one side of the fulcrum back in time, you get a circuit with output but no input, and a self-obsessed, bipolar population led by a sociopath with a self-obsessed brain saying what participants would like to say but cannot due to the rules of political correctness, confirming feudalist control of property, ending in system implosion.
Learn to work for your liberty with productive imagination, or pay someone else to do it for you, at the cost of falling living standards, growing income inequality, and war, over artificially scarce resources. Don't get me wrong; if the countryside didn't breed its own share of stupid assumptions, the empire of cities in the gravitron wouldn't exist. But somebody has to balance the system, and you aren't going to get there with majority vote, which is easily programmed to vote for legacy institutions, divide and conquer.
There is nothing rare about the marriage of control and money, temporary assumptions, but that is what the majority seeks, to make permanent, by choice. Who is rotated in and out as the face of resulting monopolies is irrelevant. As anyone can plainly see, separation of power under the US Constitution is and always has been an illusion, arbitrarily certifying itself.
Males wanting the privileges of females without the responsibility, and females wanting the privileges of males without the responsibility, transsexuals taking turns being affirmed as President, is not the path to the future. And a war on children, to make them economic slaves to the stupidity of History isn't going to change the fact. Funny, Grace recognized the communists for what they were right out of the womb and reacted accordingly, and they are still trying and failing to find something medically wrong with her, up to a cool $1/2 million in make-work now.
Insurance is for the faint of heart, for which no subsidy is enough.
as big a critic as I am of the squid we actually do have a little $ in a "negative duration" bond fund through them. who else but the squid could have conjured up a negative duration bond fund?
Wall St has no mechanism for assessing or dealing with risk - and no need for it really.
As my dad likes to say: The lord looks-out for children and drunks. In Wall St, the fed is lord.
Something is FUBAR here. You're telling me that hedgies hate duration, but the top performing stocks of 2015 are the FANGS (Facebook, Amazon, Netflix, Google, Starbucks), all of which are hugely owned by hedge funds. These are some of the highest duration assets out there!
What's the implication?
Everyone is sitting on dollars, knowing full well of the oncoming cascade of failing EM currencies.