John Gallwas, of Striker Securities, recently interviewed Don Wolf, the developer of the Alpha Blend trading system. Click here to read the full interview.
Big Volatility Shakes Bond Investors
Is the debt bomb about to go off?
By Elliott Wave International
Editor’s note: You’ll find the text version of the story below the video.
The yields on U.S. Treasuries and European sovereign debt have risen sharply in a relative short time.
Bond prices trend inversely to yields — which means debt portfolios have suffered substantial losses.
From mid-April through May 6, yield on German 10-year bunds spiked 47 basis points. Yields on 10-year U.S. Treasuries jumped 29 basis points in just the past week.
Volatility in the bond market continued on May 7. In just a few hours, the yield on the 10-year bund jumped 21 basis points before pulling back. Bear in mind that sovereign bond yields rarely move more than a fraction of one percent in a day.
Long-term bonds have been hit particularly hard. The yield on 30-year U.S. Treasuries topped 3% for the first time this year.
“We’ve been hurt,” said [an] investment manager at Aberdeen Asset Management. “The movements of recent days have been extremely unusual … .” (Financial Times, May 7)
German government debt is regarded as a benchmark for European assets.
Take a look at this chart of Euro-Bund futures from our May 6 Financial Forecast Short Term Update:
Similar to the credit crisis in 2007-2009, the rout is starting in the bond market, where the pace of evaporating liquidity is quickening. Bids are pulled, prices crack, yields rise and it leaks out toward other asset classes. The turn in bonds in the U.S. and Europe is a sign that the “debt bomb” … is about to go boom.
The April Elliott Wave Financial Forecast warned subscribers about the insanity that pervades the world’s bond markets. Take a look at this chart and commentary:
Many bonds that are perceived to be the safest credit risks guarantee investors a loss. To our knowledge this has never occurred on such a widespread basis in the history of finance. Yields on nearly a third of the euro area’s $6 trillion of government bonds are below zero, which means that bond buyers are guaranteed to lose money if they buy these bonds and hold them to maturity.
The risk of widespread defaults also lurks in the world’s credit markets.
Here’s what well-known hedge fund manager Stanley Drunkenmiller recently said:
Back in 2006/2007, 28% of debt being issued was B-rated. Today 71% of the debt that’s been issued in the last two years is B-rated. So, not only have we issued a lot more debt, we’re doing so with much [lower standards].
All told, the world’s credit markets are on very unstable ground. Expect that ground to get even shakier in the months ahead.
Created for paying subscribers and now accessible to the public for the first time, this eye-opening new report reveals the precarious consumer, corporate and government debt situation around the world. Read this three-part report now and hear directly from the top analyst at the world’s largest financial forecasting firm about key research, statistics and concerns about U.S. and global debt, as well as its imminent threats to investors.
“Glinda the Good” Deflation Isn’t Looking So… Good
Cold weather, falling wages, bizarre fluke? The real reason consumers aren’t spending is… defensive, deflationary psychology
By Elliott Wave International
Editor’s note: You’ll find the text version of the story below the video.
Get Your Free Report Now »
When 2015 began, the mainstream financial experts were certain of one thing: Even if the United States economy were sliding into deflation (which, they said, was open to discussion) that particular kind of Glinda the Good deflation, characterized by plunging energy and food prices, was going to be a boon for consumer spending:
“Good deflation a tax cut for working families,” affirmed a February 2 Huffington Post. “Cheaper gas means more flying, more driving, more hotel occupancy, more use of restaurants and leisure facilities. In short, deflation driven by the rapid decline in oil prices is good news for America.”
So, what’s happened since?
Well, according to an April 16 article in the Chicago Tribune, the sharpest annual decline in oil prices since 2008 somehow translated into not more, but less non-essential consumer spending. In March, U.S. retail sales clocked their third straight monthly decline — which doesn’t make sense, said the Tribune:
“This is puzzling. Why would consumers spend less when the economy picks up steam, and why haven’t consumers gone shopping with the 1% extra income that collapsing oil prices have handed them?”
The piece then offers a few possible reasons — such as cold weather, stagnant wages, business cuts, and so on. But none of them feel adequate, leading back to the initial shock:
“Consumers have defied expectations. Investors who anticipated purchasing-power gains would lead to greater consumer spending must be sadly disappointed.”
We absolutely agree. Consumers have defied expectations — those of the mainstream experts, that is. But they have completely complied with our long-standing expectations of a shift toward thrift, as laid out in chapter 9 of Bob Prechter’s business best-seller Conquer the Crash.
There, Prechter explained how, in times of deflation, the trend toward non-spending is not a rational decision; it’s an emotional one:
“The psychological aspect of deflation cannot be overstated. When the social mood trend changes from optimism to pessimism… consumers change their primary orientation from expansion to conservation. As consumers become more conservative, they save more and spend less. These behaviors reduce the ‘velocity’ of money, i.e. the speed with which it circulates to make purchases, thus putting downside pressure on prices.”
Then, in November 2014 Elliott Wave Financial Forecast, we showed definitive proof that deflation — not the “good” kind — was set to arrive in the United States:
In other words, the conservatism called for in Conquer the Crash arrived in 2006-2008, and it continues to restrain consumers and corporations.
For years now, the Fed along with most economists have anticipated the imminent return of inflation, but it continues stubbornly subdued. This long-term chart of the CPI shows a succession of lower highs since the early 1980s, as inflation turned into disinflation, which is on the cusp of leading to outright deflation. Some argue that the CPI is rigged to show milder levels of inflation, but the bottom graph shows the same steady move toward the zero line in the Personal Consumption Expenditures Index, an alternate inflation measure favored by the U.S. Fed.
As it approaches, deflation will introduce itself to people in subtle and not-so-subtle ways.
The first way was consumer spending. Now, our brand-new May 2015 Elliott Wave Financial Forecast shows you an equally compelling chart of U.S. consumer credit since 1980 that confirms: deflation is now “playing catch up” to debt.
Get this free report about the unexpected but imminent and grave risk to your portfolio. You can read this special 10-page report — with highlights from Robert Prechter’s New York Times bestseller Conquer the Crash — You Can Survive and Prosper in a Deflationary Depression. You’ll get 29 specific forecasts for stocks, real estate, gold, cultural trends and more.
Note the long-term down sloping trend line across the highs and the upsloping one across the lows. These lines are converging. A breakout should be imminent.
Also note that the bottom trend line is also the “Neckline” of a possible Head and Shoulders continuation pattern down.
A developing deflationary trend hinders the economic “recovery”
By Elliott Wave International
Lots of media stories say the Federal Reserve is weighing signs of economic strength to see if the economy is ripe for higher interest rates.
In truth, economic weakness has appeared on various fronts.
Such as, for example, the financial health of U.S. companies.
Profits for US companies are expected to decline over two consecutive quarters for the first time in six years… .
Not since the aftermath of the financial crisis have S&P 500 companies recorded two straight quarters of falling profits on a year-over-year basis.
Financial Times, March 6
Elliott Wave International released the March issue of the Elliott Wave Financial Forecast. It discussed signs of economic weakness, via these charts and commentary:
Corporate Profits are [a] key measure that turned down months ago… . In addition to trailing off ahead of market downturns in 2000 and 2007, the chart shows that in mid-2013 corporate profits completed a five-wave advance from 1990. The reversal from that all-time high of $1.67 trillion should continue and eventually move below the wave 4 low of $793 billion in late 2008.
In January, Real Retail and Food Service Sales fell 0.8%. A breakdown shows the declines ranged well beyond energy expenses, as furniture sales fell 8.7%, clothing was down 9.5% and sporting goods, hobby, book and music sales fell 31.7%. The year-over-year change in Real Retail and Food Service Sales has actually been angling lower since February 2011. Note how this measure reversed in much the same manner ahead of the stock price peaks in 2000 and 2007 and the recessions that followed. … U.S. Total Construction peaked in June 2006, a year and three months ahead of the October 2007 high in the Dow Industrials. U.S. Hourly Wages are weaker still. At 2.5%, the most recent peak rate-of-wage-growth is well below the prior highs of 4.3% in May 1998 and 4.2% in December 2006.
Also, the “recovery” in employment has gained back only about 40% of the jobs lost during the recession (despite new highs in the stock market). The data also suggests that over half of those new jobs are due to government borrowing.
Mind you, all these economic indicators have turned south despite unprecendented stimulus from the Fed.
The January Elliott Wave Theorist says “deflation is starting to win.”
Oil is down 61% in seven months. Bitcoin is down 86% in thirteen months. Commodities have made new lows for the past five years. Gold and silver made their highs over three years ago. The inflation rate is negative in Europe. And interest rates just went negative in Switzerland. But remember what … inflation forecasters have insisted all along: central banking guarantees that deflation is impossible.
Since that issue of the Theorist published, it’s been revealed that January brought a year-over-year decline of 0.1% in U.S. consumer prices. It was the first fall into negative territory since October 2009. On a monthly basis the decline was 0.7%, the largest since December 2008.
Want to read more? Take a look below for details on how to get a free report from Elliott Wave International.
|U.S. Economy Still on Life Support
For years, the government has manipulated its unemployment statistics to line up with its claim that the economy has recovered strongly. But that’s not ALL the government is hiding from you. From foodstuffs, to crude oil prices, to GDP, the numbers and analysis reported by the government and mainstream financial press are misleading at best, downright falsehoods at worst.
Exclusive invitation: Our friends at Elliott Wave International have just released a brand-new report, “U.S. Economy Still on Life Support,” which reveals the hidden truths behind the weakest recovery on record. Get the hidden truth — sign up for the free two-part report now »
For years, the government has manipulated its unemployment statistics to line up with its claim that the economy has recovered strongly.
But as a student of the markets, you know that already.
So here’s something you may not know …
That’s not ALL the government is hiding from you.
From foodstuffs, to crude oil prices, to GDP, the numbers and analysis reported by the mainstream financial press are misleading at best, downright falsehoods at worst.
In a just-published report by Elliott Wave International, the world’s largest independent financial forecasting firm, a team of global analysts pull the wool from investors’ eyes so you can see clearly what’s really going on.
Falling gas prices are all over the news, but the commodity declines ranged well beyond the energy markets.
For instance, did you know January economic statistics show …
- Furniture sales fell 8.7%,
- Clothing was down 9.5%, and …
- Sporting goods, hobby, book and music sales fell a whopping 31.7%?
But those numbers hardly get any press, do they?
There’s much more to this story.
Get the full story, see the charts, read EWI’s one-of-a-kind analysis, and prepare for what’s ahead in both the economy and the stock market.
FREE REPORT FROM ELLIOTT WAVE INTERNATIONAL: U.S. ECONOMY STILL ON LIFE SUPPORT. For years, the government has manipulated its unemployment statistics to line up with its claim that the economy has recovered strongly. But that’s not ALL the government is hiding from you. From foodstuffs, to crude oil prices, to GDP, the numbers and analysis reported by the government and mainstream financial press are misleading at best, downright falsehoods at worst. [Get the hidden truth — sign up for the free two-part report now]
About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.
Futures Truth Magazine celebrates its 30th year! Our publication has been educating stock and commodity traders on mechanical systems since 1985.
Issue #1/2015 is available NOW!
Here’s a Sneak Peak into Issue #1/2015:
“Bread and Butter” by Lundy Hill
722 Futures Trade Rooms: Finding the Midas Touch by Dean Handley
Developing a Profitable Long Term Trading System by Charles Tanti
Picking a Trading System: Formulas Every Trader Must Know-Part III by Lundy Hill
New Systems Tracked
Diamond Plate by Definitive Trading Co.
Clockwork Atomic 78 by Clockwork Group
Clockwork The General by Clockwork Group
Clockwork Paper Barrels by Clockwork Group
Clockwork Rising Sun by Clockwork Group
Clockwork Sucre by Clockwork Group
Top 10 Tables
Futures Truth’s Top 10 Tables are now updated through January 2015.
CFTC Enforcement Press Releases
Find out the latest scams that the CFTC has found, and who to avoid. Always, Always do your research before investing any money with anyone!
Click here to purchase your copy today!