Black Swan - US Government Bonds 10 YR
Speculation for US Government Bonds:
"If you want to learn how to trade, go down to the beach and watch the waves." - Ed Seykota
After reading this, I went down to the river and watched the waves for a bit, and came up with this model.
If you think of a river, the riverbanks are made of sand and pebbles... Each pebble and grain of sand are underlying conditions. Together, they create a hard boundary, that the waves cannot traverse and bounce off of. There are unknowns beneath the surface, which can only be detected with signals and indicators, from the behavior of the waves. The waves bounce off each other to create ripples, and sub-waves in the opposing direction, at the middle, they form a stalemate, this is the Line of Least Resistance (LLR). There is a current, coming from upstream, and all the way down to the sea, which ultimately cannot be resisted. However, there are large objects - stones usually, that break out of the surface and create ripples of their own as the current bounces off of them. These are typically large events. It is interesting to watch little whirlpools of volatility form as energy is trapped in between such ripples!
The trader is the bird, who lands in the river and gets swept to another location. It is up to the bird's judgement to predict where it will take them. Perhaps they will be swept to danger, or a prize beneath the surface.
Housing:
- Commodities and building materials are being speculated to unprecedented rates. Lumber almost $1700 for the forward contract.
- Fed maintain that inflationary effects are “transitory” and remain dovish on monetary policies. It can be speculated that such the inflationary effects will continue in commodities if such dovish monetary policies are maintained.
- Commodities being speculated to such prices affects house prices due to the scarcity of resources. It also erodes price margins of house-builders.
Cryptocurrency:
- Cryptocurrencies have served as a faithful indicator for real inflation perceived by investors.
Semiconductors:
- There is a global semiconductor shortage.
- China is the greatest importer of semiconductors.
- US trade sanctions have cut their supply of this most vital component.
- However, US's largest imports are capital goods, followed by consumer goods and industrial supplies and materials.
- China was the largest provider of foreign goods to the US supplying 18.6% of all US imports in 2020.
- "Europeans found the Chinese amusing for their rejection of paper money... People presumed that the Chinese were five generations behind us - In reality they were a generation ahead of Europe. Under the Mongol emperors they had experienced a boom in which paper billions were issued to finance military conquests and vast public works, only to go through the bitter deflationary consequences - and the impression of all this had lasted through many subsequent centuries." - Jim Rickards
Bonds and Interest Rates:
- Investors are euphoric, reciting the mantra of "don't fight the Fed," however, when Janet Yellen cracked and let a neutral comment slip, the markets tumbled. Institutional investors are wary, and prepared to exit at the first sign of trouble. Risk is great in a vertical market, especially in a speculative bubble.
- It is believed that bears are praying for a black swan event to crash the market... I beg to differ. To me, it seems like the bulls are praying for a black swan... The possibility of QE being extended forever. "There is no inflation. Interest rates won't be raised. QE tapering won't happen. It will be different this time!"
- Inflation must be maintained at all costs in the Fed's mind. Inflation erodes debt.
- The US is the largest debtor nation in the world... It cannot endure deflation. Deflation raises the real value of debt.
- However, when inflation rises, bond holders will sell their long-term bonds, as inflation corrodes their value, so interest rates must be raised. Typically, higher inflation leads to higher yields, which translates to higher interest rates.
- Now, the Fed simply buys their own bonds. They buy their own debt with fabricated money to create artificially higher bond prices, keeping yields controlled, therefore signaling that inflation is not rising, so they do not have to raise interest rates.
- This is a false impression of demand, and it debases the currency against real commodities and assets. It inflates the everything bubble with cheap money. Everything is to manipulate interest rates, which is the signal for economic health.
- Low interest rates stimulate economic growth due to easy lending, and inflation does indeed translate to higher levels of spending.
Speculation:
- In retaliation to the semiconductor shortage, China is squeezing the global commodities market.
- COVID-19 is squeezing global production.
- House builders will be priced out and abandon projects, and eventually home-buyers too will be priced out of the market. Then - when there are no more buyers, real estate investors will flood the market with their assets which are no longer appreciating in value, having obtained a cool 70% profit in a year (XLRE). Tangible real estate likely yielded much more.
- Cryptocurrencies' speculative bubble will pop, as blockchain technology has fully been harvested. It's speculative prices are not needed for it to function.
- There are 2 paths that I see for the Federal Reserve:
(A) QE Infinity, YCC, etc. Printing more and keep the game going until it cannot.
(B) Naturally allow bonds to return to true price, completely destroying the everything bubble.
- There exists a $1.5 quadrillion USD derivatives overhang, in addition to the "everything bubble". It is possible that the Fed can no longer opt for option B. As we saw with Archegos/Credit Suisse and Robinhood/Citadel, there are massively overleveraged funds that are pricing in a QE hard floor, with liquidations just beneath the surface.
- If you think that these hedge funds learned their lesson from Archegos, you are wrong. Institutional trend traders - how do they make money? They buy the dip until it doesn't work. Market maker quant firms like Citadel - how do they make money? They use monstrously leveraged positions to capitalize on miniscule bid-ask spreads. They will easily be swept by an unexpected and volatile move. It is the private investor only that dares to go against the trend. There are business fundamentals trading funds. They too will capitulate when nothing is going their way. How telling it was when every major broker locked down to prevent a mere $80~ billion liquidation during Gamestop's first rise!
- It is likely that eventually, the Fed will lose control, and there will be an inflationary shock.
How the Game Ends:
- What is truly fascinating is that if you think about it... the Fed can indeed "print money" forever. They are the world reserve currency.
- There is but one way the game ends... China will release their blockchain backed digital currency (DCEP/CBDC), while accumulating real commodities and capital goods.
- CBDC's are favored by the G20, IMF, BIS et al. (financial elite), as they address tax evasion. There is an estimated $36 trillion in corporate tax havens (as of 2016). A global sanction of China is unlikely.
- China and the eastern bloc will simply exit the western Federal Reserve System, they will capitulate on the US Dollar, and demand commodities and real assets. When the Bretton Woods Agreement was abandoned, a potential crisis caused by a run on gold was averted, but this time, there is no escape.
- Soon, the world will have to choose between money backed by military power and money backed by tangible goods.
My friends, it is possible that the river has at last found its way to the wide ocean... The possibilities are infinite.
"Allies — the strongest and truest in the world: underlying conditions" - Jesse Livermore
GLHF,
DPT
Disclaimer:
We absolutely do not provide financial advice in any shape or form. We do not recommend investing based on our opinions and strongly cautions that securities trading and investment involves high risk and that you can lose a lot of money. Loss of principal is possible. We do not recommend risking money you cannot afford to lose. We do not guarantee future performance nor accuracy in historical analyses. We are not registered investment advisors. Our ideas, opinions and statements are not a substitute for professional investment advice. We provide ideas containing impersonal market observations and our opinions. Our speculations may be used in preparation to form your own ideas.
"If you want to learn how to trade, go down to the beach and watch the waves." - Ed Seykota
After reading this, I went down to the river and watched the waves for a bit, and came up with this model.
If you think of a river, the riverbanks are made of sand and pebbles... Each pebble and grain of sand are underlying conditions. Together, they create a hard boundary, that the waves cannot traverse and bounce off of. There are unknowns beneath the surface, which can only be detected with signals and indicators, from the behavior of the waves. The waves bounce off each other to create ripples, and sub-waves in the opposing direction, at the middle, they form a stalemate, this is the Line of Least Resistance (LLR). There is a current, coming from upstream, and all the way down to the sea, which ultimately cannot be resisted. However, there are large objects - stones usually, that break out of the surface and create ripples of their own as the current bounces off of them. These are typically large events. It is interesting to watch little whirlpools of volatility form as energy is trapped in between such ripples!
The trader is the bird, who lands in the river and gets swept to another location. It is up to the bird's judgement to predict where it will take them. Perhaps they will be swept to danger, or a prize beneath the surface.
Housing:
- Commodities and building materials are being speculated to unprecedented rates. Lumber almost $1700 for the forward contract.
- Fed maintain that inflationary effects are “transitory” and remain dovish on monetary policies. It can be speculated that such the inflationary effects will continue in commodities if such dovish monetary policies are maintained.
- Commodities being speculated to such prices affects house prices due to the scarcity of resources. It also erodes price margins of house-builders.
Cryptocurrency:
- Cryptocurrencies have served as a faithful indicator for real inflation perceived by investors.
Semiconductors:
- There is a global semiconductor shortage.
- China is the greatest importer of semiconductors.
- US trade sanctions have cut their supply of this most vital component.
- However, US's largest imports are capital goods, followed by consumer goods and industrial supplies and materials.
- China was the largest provider of foreign goods to the US supplying 18.6% of all US imports in 2020.
- "Europeans found the Chinese amusing for their rejection of paper money... People presumed that the Chinese were five generations behind us - In reality they were a generation ahead of Europe. Under the Mongol emperors they had experienced a boom in which paper billions were issued to finance military conquests and vast public works, only to go through the bitter deflationary consequences - and the impression of all this had lasted through many subsequent centuries." - Jim Rickards
Bonds and Interest Rates:
- Investors are euphoric, reciting the mantra of "don't fight the Fed," however, when Janet Yellen cracked and let a neutral comment slip, the markets tumbled. Institutional investors are wary, and prepared to exit at the first sign of trouble. Risk is great in a vertical market, especially in a speculative bubble.
- It is believed that bears are praying for a black swan event to crash the market... I beg to differ. To me, it seems like the bulls are praying for a black swan... The possibility of QE being extended forever. "There is no inflation. Interest rates won't be raised. QE tapering won't happen. It will be different this time!"
- Inflation must be maintained at all costs in the Fed's mind. Inflation erodes debt.
- The US is the largest debtor nation in the world... It cannot endure deflation. Deflation raises the real value of debt.
- However, when inflation rises, bond holders will sell their long-term bonds, as inflation corrodes their value, so interest rates must be raised. Typically, higher inflation leads to higher yields, which translates to higher interest rates.
- Now, the Fed simply buys their own bonds. They buy their own debt with fabricated money to create artificially higher bond prices, keeping yields controlled, therefore signaling that inflation is not rising, so they do not have to raise interest rates.
- This is a false impression of demand, and it debases the currency against real commodities and assets. It inflates the everything bubble with cheap money. Everything is to manipulate interest rates, which is the signal for economic health.
- Low interest rates stimulate economic growth due to easy lending, and inflation does indeed translate to higher levels of spending.
Speculation:
- In retaliation to the semiconductor shortage, China is squeezing the global commodities market.
- COVID-19 is squeezing global production.
- House builders will be priced out and abandon projects, and eventually home-buyers too will be priced out of the market. Then - when there are no more buyers, real estate investors will flood the market with their assets which are no longer appreciating in value, having obtained a cool 70% profit in a year (XLRE). Tangible real estate likely yielded much more.
- Cryptocurrencies' speculative bubble will pop, as blockchain technology has fully been harvested. It's speculative prices are not needed for it to function.
- There are 2 paths that I see for the Federal Reserve:
(A) QE Infinity, YCC, etc. Printing more and keep the game going until it cannot.
(B) Naturally allow bonds to return to true price, completely destroying the everything bubble.
- There exists a $1.5 quadrillion USD derivatives overhang, in addition to the "everything bubble". It is possible that the Fed can no longer opt for option B. As we saw with Archegos/Credit Suisse and Robinhood/Citadel, there are massively overleveraged funds that are pricing in a QE hard floor, with liquidations just beneath the surface.
- If you think that these hedge funds learned their lesson from Archegos, you are wrong. Institutional trend traders - how do they make money? They buy the dip until it doesn't work. Market maker quant firms like Citadel - how do they make money? They use monstrously leveraged positions to capitalize on miniscule bid-ask spreads. They will easily be swept by an unexpected and volatile move. It is the private investor only that dares to go against the trend. There are business fundamentals trading funds. They too will capitulate when nothing is going their way. How telling it was when every major broker locked down to prevent a mere $80~ billion liquidation during Gamestop's first rise!
- It is likely that eventually, the Fed will lose control, and there will be an inflationary shock.
How the Game Ends:
- What is truly fascinating is that if you think about it... the Fed can indeed "print money" forever. They are the world reserve currency.
- There is but one way the game ends... China will release their blockchain backed digital currency (DCEP/CBDC), while accumulating real commodities and capital goods.
- CBDC's are favored by the G20, IMF, BIS et al. (financial elite), as they address tax evasion. There is an estimated $36 trillion in corporate tax havens (as of 2016). A global sanction of China is unlikely.
- China and the eastern bloc will simply exit the western Federal Reserve System, they will capitulate on the US Dollar, and demand commodities and real assets. When the Bretton Woods Agreement was abandoned, a potential crisis caused by a run on gold was averted, but this time, there is no escape.
- Soon, the world will have to choose between money backed by military power and money backed by tangible goods.
My friends, it is possible that the river has at last found its way to the wide ocean... The possibilities are infinite.
"Allies — the strongest and truest in the world: underlying conditions" - Jesse Livermore
GLHF,
DPT
Disclaimer:
We absolutely do not provide financial advice in any shape or form. We do not recommend investing based on our opinions and strongly cautions that securities trading and investment involves high risk and that you can lose a lot of money. Loss of principal is possible. We do not recommend risking money you cannot afford to lose. We do not guarantee future performance nor accuracy in historical analyses. We are not registered investment advisors. Our ideas, opinions and statements are not a substitute for professional investment advice. We provide ideas containing impersonal market observations and our opinions. Our speculations may be used in preparation to form your own ideas.
Trade active:
EIB issues digital bonds backed by Ethereum smart contracts (speculated in March 2021):
www.reuters.com/tech...ord-high-2021-04-27/
www.reuters.com/tech...ord-high-2021-04-27/
Trade active:
Speculation: Game has changed. Algos will destroy all trend traders... Game Theory will prevail in the next decade.
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I heard a funny thing today:
"I went to trade wood chips for gold at the pawn shop they thought I was an idiot.. they said 'bro inflation is here u sure you want gold for wood?'"
That will be one for the history books!
"I went to trade wood chips for gold at the pawn shop they thought I was an idiot.. they said 'bro inflation is here u sure you want gold for wood?'"
That will be one for the history books!
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NY Fed Report: Total household debt rose by $85 billion to $14.64 trillion
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The Housing Bubble:
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The Tech Bubble:
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COVID-19 Shock:
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Inflation and Middle-East War (Oil):
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The Derivatives (Gamma) Bubble:
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Inflationary Shock expectations:
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The Israel and Tech bubble:
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The Crypto Bubble:
Comment:
Talks of tapering from FOMC minutes:
www.federalreserve.g...cminutes20210428.pdf
www.federalreserve.g...cminutes20210428.pdf
Trade active:
Speculation:
In under 5 years, the entire western financial system will be running on SDRs running on blockchain (probably Ethereum), and the eastern financial system will be running on DCEP.
In under 5 years, the entire western financial system will be running on SDRs running on blockchain (probably Ethereum), and the eastern financial system will be running on DCEP.
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Gold Bubble:
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Commodities Bubble:
www.tradingview.com/...dities-Lumber-Short/
www.tradingview.com/...dities-Lumber-Short/
Trade active:
Speculation:
- Money doesn't move, so there is no inflation based on the monetary definition of inflation. It never enters the supply.
- However, M2 Velocity is the trap, money doesn't need to move, since it is simply used as collateral to create derivatives based on it. Money is lent, real assets are bought up with these leveraged derivatives, and liabilities are hidden, all off the balance sheets through derivatives.
- This creates inflation of real commodities, but deflation in monetary inflation.
- Fed will attempt to crash the commodities market to control real inflation.
- This is the bottom line of the derivatives bubble, which has spread to all sectors.
I will research more into off balance sheet instruments to see where the weakness lies.
- Money doesn't move, so there is no inflation based on the monetary definition of inflation. It never enters the supply.
- However, M2 Velocity is the trap, money doesn't need to move, since it is simply used as collateral to create derivatives based on it. Money is lent, real assets are bought up with these leveraged derivatives, and liabilities are hidden, all off the balance sheets through derivatives.
- This creates inflation of real commodities, but deflation in monetary inflation.
- Fed will attempt to crash the commodities market to control real inflation.
- This is the bottom line of the derivatives bubble, which has spread to all sectors.
I will research more into off balance sheet instruments to see where the weakness lies.
Trade active:
Dollar Speculation:
Trade active:
I visited the river today... I noticed the high tide, probably due to the proximity of the moon.
All of the boundaries that were previously defined, and impossible for the water to cross were easily overcome.
Lots of chaos.
Under the influence of strong gravity, all boundaries can be overcome.
All of the boundaries that were previously defined, and impossible for the water to cross were easily overcome.
Lots of chaos.
Under the influence of strong gravity, all boundaries can be overcome.
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The Short Volatility Bubble:
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Black Monday in 1987 occurred during a booming stock market, economic expansion, and rising interest rates.
+40% of the earning-per-share growth and +30% of the stock market gains since 2009 are from share buy-backs (as of 2017).
Long term government bond yields are now the lowest levels in the history of human civilization dating back to 1285, according to Global Financial Data.
"Volatility is the brother of credit" - Artemis
Cheap credit leads to lower volatility, and volatility inverses the credit cycle.
The IMF warned that 22% of US corporations are at risk of default if interest rates rise.
At the start of 1987, inflation was at 1.5%.
Watch for a liquidity squeeze in the credit markets.
The current short gamma risk of ETP style passive investing that is prevalent today is similar to the 1987 portfolio insurance conditions.
There is supposedly a $1.5 quadrillion USD derivatives bubble, and short-gamma de-leveraging in this bubble would not be possible.
This is really not just simply a 20 year cycle, or even a 100 year cycle, as I initially suspected. Perhaps it is a near 1000 year credit cycle.
+40% of the earning-per-share growth and +30% of the stock market gains since 2009 are from share buy-backs (as of 2017).
Long term government bond yields are now the lowest levels in the history of human civilization dating back to 1285, according to Global Financial Data.
"Volatility is the brother of credit" - Artemis
Cheap credit leads to lower volatility, and volatility inverses the credit cycle.
The IMF warned that 22% of US corporations are at risk of default if interest rates rise.
At the start of 1987, inflation was at 1.5%.
Watch for a liquidity squeeze in the credit markets.
The current short gamma risk of ETP style passive investing that is prevalent today is similar to the 1987 portfolio insurance conditions.
There is supposedly a $1.5 quadrillion USD derivatives bubble, and short-gamma de-leveraging in this bubble would not be possible.
This is really not just simply a 20 year cycle, or even a 100 year cycle, as I initially suspected. Perhaps it is a near 1000 year credit cycle.
Trade active:
"Everything is meaningless." - King Solomon
There is only Credit and Risk.
There is only Volatility and Short Volatility.
There is only Credit and Risk.
There is only Volatility and Short Volatility.
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Oil setting up for an inflationary shock:
www.tradingview.com/...yckoff-Accumulation/
www.tradingview.com/...yckoff-Accumulation/
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It is now clear that QE tapering has begun, after they have removed $351 Billion in Liquidity from Market via Reverse Repo:
news.bitcoin.com/fed...y-via-reverse-repos/
news.bitcoin.com/fed...y-via-reverse-repos/
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Stock market is at a 100 year old resistance, Can the bull market in stocks really continue?
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Asset Inflation, but economic Deflation. The beginning of the end:
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CPI posted 4.2% year over year gain. Yields remain under 1.6%.
We are to presume that investors (outside of the Fed) are purchasing bonds at a >2%
premium, with added interest risk which is an inevitability.
It simply does not add up.
We are to presume that investors (outside of the Fed) are purchasing bonds at a >2%
premium, with added interest risk which is an inevitability.
It simply does not add up.
Trade active:
China warns of global asset bubbles, caused by ultra-low rates in developed countries.
www.bloomberg.com/ne...l-asset-bubble-risks
"As a reminder, the global economic cycle has become somewhat synonymous with China’s credit impulse over the years. Ironically, a pandemic that began on Chinese soil provided the impetus for a serious infrastructure push in the US. If Joe Biden’s fiscal proposals are enacted, it could mean that, at least for the next few years, the global economy will turn on the fiscal impulse in Washington rather than the Chinese credit cycle."
heisenbergreport.com...ust-turned-negative/
Coincidence? There are no coincidences in politics, according to Roosevelt.
China's credit impulse turned negative. Let us see if the US gambit will pay off in the suppression of China, or if it will fall flat and US citizens will be left to foot the bill.
www.bloomberg.com/ne...l-asset-bubble-risks
"As a reminder, the global economic cycle has become somewhat synonymous with China’s credit impulse over the years. Ironically, a pandemic that began on Chinese soil provided the impetus for a serious infrastructure push in the US. If Joe Biden’s fiscal proposals are enacted, it could mean that, at least for the next few years, the global economy will turn on the fiscal impulse in Washington rather than the Chinese credit cycle."
heisenbergreport.com...ust-turned-negative/
Coincidence? There are no coincidences in politics, according to Roosevelt.
China's credit impulse turned negative. Let us see if the US gambit will pay off in the suppression of China, or if it will fall flat and US citizens will be left to foot the bill.
Trade active:
China Credit Cycle & US Markets Reflexivity:
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I understand now, the force-fed credit cycle is coming to an end.
There is no monetary inflation, because the money created does not enter the economy... however there is credit inflation because credit is created with that money as collateral.
When credit can no longer inflate, credit inflators will begin to sell assets so that they can redeem their asset appreciation for money to redeem for the debt they have lent or borrowed.
Where is the money that was injected into the economy? Where did it come from? Who loses here?
YOU!
The money created from high salaries caused by the speculative asset bubble, and the middle class who invest their hard-earned dollars into the asset bubble, creating more jobs and easy money, which is in turn invested back into the bubble for effortless paper wealth... The inflated prices you pay for food, education, housing, health care... When credit inflators decide to redeem their asset appreciation. It all returns to ashes.
There is no monetary inflation, because the money created does not enter the economy... however there is credit inflation because credit is created with that money as collateral.
When credit can no longer inflate, credit inflators will begin to sell assets so that they can redeem their asset appreciation for money to redeem for the debt they have lent or borrowed.
Where is the money that was injected into the economy? Where did it come from? Who loses here?
YOU!
The money created from high salaries caused by the speculative asset bubble, and the middle class who invest their hard-earned dollars into the asset bubble, creating more jobs and easy money, which is in turn invested back into the bubble for effortless paper wealth... The inflated prices you pay for food, education, housing, health care... When credit inflators decide to redeem their asset appreciation. It all returns to ashes.
Trade active:
"In the case of the 2008 crash, the fictitious capital was house prices. These were bid up way beyond their real value by over-geared borrowers wielding their non-conforming loans.
After the crash, the U.S. Federal Reserve, instead of allowing the credit markets to find their own equilibrium, began offering credit at 0 percent. As Japan discovered in the 1990s, prescribing whiskey to cure a hangover simply leads to lost decades."
- Matthew Bransgrove, Principles of Good Government
What is Bitcoin? What is DOGE? It is fictitious capital.
After the crash, the U.S. Federal Reserve, instead of allowing the credit markets to find their own equilibrium, began offering credit at 0 percent. As Japan discovered in the 1990s, prescribing whiskey to cure a hangover simply leads to lost decades."
- Matthew Bransgrove, Principles of Good Government
What is Bitcoin? What is DOGE? It is fictitious capital.
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The hidden PE-insurance bubble: www.reuters.com/busi...insurers-2021-06-01/
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Fed begins unwinding of corporate credit: www.federalreserve.g...onetary20210602a.htm
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Interesting stat: since 1985, 10Y yields have never been below 4% with a 3% Core CPI y/y%
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How ironic it would it be if the exact opposite of what people were scared of and what the bulls wanted to happen was the catalyst:
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Credit Cycle reversal now affecting the financial sector:
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Very interesting. COVID-19 Delta Variant emerges as previously forecasted, to the day:
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Housing Market Bubble begins to pop, as predicted:
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Volatility is the king of the markets. Get Volatility right, and you get the market, economics, politics right:
Result: "Gas Flowing 5 MPH Will Take Two Weeks to Reach New York Once Pipeline Is Reopened Fuel on Colonial system will take 15 days to hit New York area Gasoline shortages are occurring from U.S. South to East Coast"
Iraq raises the price of oil exports to the US, while lowering prices for Asia, while offering to buy stake in Exxon' major oilfield. The offer was in oil.
"To generate more revenue, Iraq plans to increase light production by 100,000 barrels per day (bpd) to reach 1.1 million bpd."
Speculation:
Commodity squeeze is underway. The false money printed by the Fed is being rejected, and the run on US assets is beginning.
Global actors are beginning to exit the USD financial system, and are moving toward trading based on tangible assets.