Exactly three weeks ago, when bulls were frazzled by the sudden downgrade in stocks which saw the biggest selling wave in US equities in month over a combination of Chinese property fears, margin concerns and stagflation worries, we wrote that "an unexpected boost to [the bulls'] optimistic views has emerged courtesy of Dennis Gartman who in his latest Gartman Letter (now available only to "close friends and family") writes that the bull market is over and the "bear market has begun in earnest." We concluded that "Maybe the bears will luck out and this once Gartman will be right. Then again... no."
"No" was right, because not only did Gartman once again bottom-tick the market, but the S&P is up 300 points since his latest bold, and wrong, prediction.
We bring this up not because there was much doubt in the outcome of Gartman's latest forecast, but because earlier today we noted that Treasury shorts are once again soaring - for understandable reasons - yet this technical positioning raises the risk for another major short squeeze.
Yet to those willing to punt on the long side, we have some words of caution. Or rather Dennis Gartman does.
Speaking to Bloomberg this morning, Gartman said that the climb in Treasury yields like a buying opportunity: “I haven’t seen this sort of lifting of the boat in a market in a very, very long time,” says former “Gartman Letter” publisher Dennis Gartman, referring to recent bond-market bearishness. “So a contrarian has to say, ‘I should look at being bullish’” on bonds.
And as contrarians to Gartman's "contrarianism", this was the best possible news for Treasury shorts who may have been eyeing the exit in light of the recent surge in shorting.
Indeed, as Bloomberg notes elsewhere, trading volumes of Eurodollar futures and options topped 20-day average levels on Friday. The volume of puts was more than three times call volume, while flows remained skewed towards downside liquidation, CME preliminary open-interest data suggest.
Gartman, who still publishes his Gartman Letter but only distributes it to "friends and family", now chairs the endowment investment committee at the University of Akron in Ohio, cited a trading pattern from Friday as key to his thinking.
"Everybody, and I mean everybody, is bearish the bond market and suddenly you had a reversal to the upside in the long bond," he said. He is right, of course, but everybody - and we mean everybody - also knows the technicals in the bond market, and as such the marginal new information here is that Gartman is bullish. Everyone knows what that means.
What is odd is that Gartman has been in the camp that sees inflation as persistent, which by definition means higher rates for longer, so his bet on lower Treasury yields, he suggests, will be temporary. In other words, Gartman is simply trying to time a market inflection point. Not to beat a dead horse, but when it comes to his track record in doing that, well... just look at how the S&P reacted after his latest "doomsday" forecast above.
“Five years from now, the 10-year yield would be about 4%,” he says. “But for the next month or two, having seen the 10-year yield go from a little under 1% to 1.65%, can we get back to 1.35%? I think we can do that without too much difficulty.”
See you at 2%