Everybody to the Port Side
Yesterday we looked at the strange configuration in T bonds, where Wall Street dealers appear to be clinging to a deflationary Armageddon scenario, or just maybe are holding up a big buyer with a stated mission to buy these bonds. Regardless, today we check out a different view of T bonds.
Here is the Commitments of Traders data for the 30 year T bond, courtesy of Sentimentrader.com:
Smarter money commercial bond traders are heavily aligned against continued bullish prospects for the long bond while large speculators and little guys are full on bullish.
More evidence that the dumber money is loading up on T bonds (as directed by the greater media and the general angst of the day) comes from the RYDEX bull ratio. The public is rabid for Uncle Sam's debt. How convenient. In fact, in reference to the previous post, isn't it amazing how the system seems to be geared toward always having the public set up on the wrong side of things? Yes, they will be right as long as the mature trend holds, but the public is due to be very wrong when this trend changes; and change it will.
NFTRH is bullish the markets for the second half of 2012 pending what we expected would be a choppy (at best) July. The Presidential cycle is in play, everybody's on the port side of the boat and people are just giving up left and right. When they give up, they buy the 'sure thing' that they perceive T bonds to be.
This summer is surely not a lot of fun, but when taking a certain perspective on the markets it is clear that it is not supposed to be fun. What it is supposed to do is get as many people off sides as possible through confusion and anxiety. This is what usually happens leading into big changes.
If I am wrong to be leaning bullish (coming out of July), then we do not pass go, do not collect $200 and go straight to the deflationary Armageddon implied by current T bond trends. If however, the US stock market remains in its UP trend and precious metals and commodities confirm bottoms over the next couple of months, people hiding in T bonds will be in for an unpleasant surprise.
I have no crystal ball. Current analysis called for some July difficulty (with which the above noted T bond over bullishness is in alignment) but a generally bullish environment heading out of summer. If this analysis proves wrong, we will adjust. It is in the willingness to make adjustments after all that we manage risk and preserve capital.
Meanwhile, the theme remains bullish on assets and bearish on long term Treasury bonds post-July. Don't get played.