MELTDOWN?

Today's 70 point drop in the Dow drop the index down to the low 15,000 area, a full 600 points off the highs of recent months.  Overall, things look really interesting in a bad way as 10 year bond yields are flashing higher, quickly and the stock market isn't exactly reacting well.  Remember, it isn't the actual 10 year bond rate that is concerning as it is still freaking low at 2.88%!  What is concerning is the speed in which it moved to the 2.88%.

Look at the HUGE move since May!

Here's the 30 Year -

WARNING SIGNS
What we really need to be watching is the equity and bond market interaction given their independent moves.  For example, if stocks continue to slide, but yields in long bonds arrest their slide (yields go down instead of up and prices of bonds go up), then it will signal a level in which bond buyers feel they are compensated for their risk AND this could mean a big exodus from equities.  Think about this for a moment, even with equity weakness, traders, fund managers, and retail guys have asked themselves...."If I get out of equities, where can I go, bonds suck, so I might as well buy dividend paying stocks".  BUT, if we get to a level where managers and traders rationalize that bond yields are decent enough to be a safe haven to potentially miss out on some equity movement, the markets are in trouble as stocks have pretty much been the only game in town for almost 6 months.

Having said that, if both equity markets and bonds go down too, you better hope you locked in gains when they were easy as I think everyone but Joe 6 Pack has been identifying exits and ensuring they aren't the last out the door.  Remember, Mom and Pop probably just entered this market fully in the last six months, it is probably time to let them have it.

MELTDOWN?
Emerging markets are struggling now and India is certainly in a total meltdown.

The Dow certainly looks like it could drop a minimum of 200 to 300 points here to get back to the lower support at 15,750.

And, speaking of meltdowns, I am no tree hugger, but I'm simply awed by the silence of the commie media when it comes to the potential threats of something that is going on right off the left coast.  I am concerned about this as I'm looking to schedule a trip to Hawaii next summer.  If any readers have some guidance for what to do and where to go, please share them via email or in the comments.

Some light hearted stuff for Monday night.....
Professor Christopher Busby speaks with the RT on the anniversary of the Chernobyl nuclear accident to discuss the ongoing Japanese nightmare in Fukushima.  Like most important and real happenings in our country and in the world, you almost have to go to a foreign source for news to get a decent perspective on reality.  In the US media we'll discover that Beyonce got booed and that everyone needs medical marijuana or each boy and girl deserves to make a choice of what sex they are for that day, but we'll never hear anything meaningful about our constitutional rights being whisked away or the absolute destruction that is occurring in the Pacific Ocean right now.




Word is that the damming of the area and continuous pumping of water into the fuel holding areas has caused the underlying ground and sediment to subside.  Millions if not trillions of gallons of contaminated water are leaking into the ocean which is a nutshell, isn't good.


Have a great week, and you'd better figure out where the nearest exit is....

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.com/

RETURN OF REALITY? (US BOND MARKET UPDATE)

NIRVANA IS SHUTTING ITS DOORS?
In the past four years we've all lived in a sort of Nirvana-like state where equities go up everyday and somehow government bond yields go lower too.  For sometime, I've been troubled by the weird relationship many markets have maintained because the activity of the "new-normal" period we've had just doesn't conform to historical norms.

We've had strange intra-market relationships between US government bonds and equity markets, US currency and the stock and bond markets, and even odd performance relative to emerging markets.  In the past week or two though, some interesting developments have occurred which probably tie closely to the Fed hinting that they may taper or begin to taper purchases of bonds and mortgage backed securities.

SELL EM IF YOU'VE GOT EM!
To get the work week started, please take a look at the following screenshots of the government bond price action this morning.  While stock markets are moving up (as they should) when government prices are going down (yields are up), I'm a bit alarmed as these are HUGE moves.  The ten year treasury moving 5% in any direction is massive and can't be good for those hedge funds and insurance companies that are leveraged and positioned the wrong way.

Not to be out done, Japanese bonds are also getting clobbered.  I wonder if the Japanese Central Bank has unlimited QE ready, it looks like they are going to need it.

US Tips (Treasury Inflation Protected Securities) are also getting smacked around too, so it would seem there is nowhere to hide in government bonds today.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

BONDS SAY THIS IS ALL BULL

WHAT DOES THE BOND MARKET THINK?
Yesterday we had a nice rally in the equity markets as we had a "risk on" day and everything is wonderful again. It seems that policy leaders and economic talking heads would have us believe that the situation in Europe is manageable and there is nothing to worry about.  Stocks rally, we all take a deep breath and sigh that the collapse has been avoided, yet we can still look at one indicator and know that it is all a lie.

10 YEAR TREASURIES AREN'T IMPRESSED
In the midst of the risk on recovery we see that nothing has altered the trajectory of the 10 Year yield as it continues to dive lower.  The other day we did hit a 1.65% yield but today we still are near 1 year lows at 1.642%.  As I examined the rates I took a double take as I recalled that in January of 2012 I mentioned that a 1.50% to 1.60% level should be expected (CONFIDENCE LOST, 13 FOR 2012).  Now that we are here, one has to wonder if a 1.25% or lower could be in our future?  I also targeted $84.00 for the US Dollar Index and we are getting quite close there as well.  If you haven't read the 2012 predictions post, you should as you will be happy to see that your humble host has been spot on with many of the predictions.

THE FED WILL TAKE ACTION SOON
The debt markets continue to signal that things are not going well and institutional investors fear losing their capital more than they fear not earning.  Greek elections will soon come in focus over the next few days and will weigh heavily on the markets.  Can you believe that the Fed will seriously consider adding more liquidity to this market in just a few days?  I am hearing from many of my friends that they are refinancing and it would seem like this would be a great time.  If you are one of those guys that must be able to brag about the lowest refi rate you received at cocktail parties, I would suggest you hold off as lower rates are still coming.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/