T-Note Rally Sniffs Even Harder Times Ahead

Our end-of-world date came a few days later than preacher Harold Camping’s, but it looks like we were both wrong.  Unlike Camping, we were not so much concerned with the wrath of God — which, one fervently hopes, has been amply vented by the spectacular irruption of natural disasters visited upon the planet and humankind lately. Rather, our chief worry concerned the potential top that we saw forming in the 10-Year T-Note.  Not exactly the Rapture, let alone Judgment Day, but perhaps troublesome enough to set the world’s financial system on course for its own day of reckoning. For if prices for Treasury paper are indeed topping, and yields therefore bottoming, then scores of millions of debtors are about to be squeezed to the brink of insolvency.

Perhaps we needn’t have worried. Yesterday, the June 10-Year T-Note futures finally hit the 123^21 rally target we’d proffered weeks ago by way of a Rick’s Picks trading “tout.” Then, in apparent defiance of natural law and the black artfulness of our proprietary Hidden Pivot analysis, they continued higher.  Not much higher, to be sure, but higher enuf to suggest that the preference of buyers for “safety” over risk is unlikely to abate over the near term.

Bailing Out of Short

Well in advance of this by-now fabulous surge in Ten-Year paper, we’d told subscribers to get short at the projected top, but with a very tight stop-loss of five ticks.  We reiterated this cautionary note in the chat room yesterday after a phone conversation we had with our friend Doug B, an occasional contributor to this site. Doug mentioned that the good folks who brought us QE1 and QE2 were contemplating something a little different for QE3 – i.e., a 1950s- style targeting of rates on the 10-Year Note. Presumably, this would be instead of trying to mop up growing quantities of debt elsewhere along the yield curve, or of trying to push administered rates lower than…zero.
It’s hard to predict what a further surge in the 10-Year Note will mean for the fragile ecology of the financial world, but it would seem to augur further delay in the collapse of  The System. A drift in yields down to 2.5% or so also suggests that investors think QE3 will be as big a bust as QE2 where resuscitating the economy is concerned. Whatever the case, we bailed out of our short-lived short in T-Notes five painless ticks above the entry price. Putting aside the Fed’s rumored intention of stabilizing the 10-Year above all, we remain bearish on the dollar. Yes, it has been sold almost to death and deserves a dead-cat bounce every now and then. But merely because “everyone” hates the dollar is not sufficient reason to believe it cannot continue lower.  Meanwhile, if the best argument dollar bulls can make depends on weakness in the euro, or in a flight to supposed “safety,” then we’ll continue to hoot the bulls from the sidelines.