Many have predicted the bursting of the US Treasury market, but many were simply too early. Wednesday’s widening of the yield curve proves that the great unwind of the treasury market has begun. Those who hold Treasuries are worried, not about low yields, but the ability for the US Government to pay back the existing debt load. Obama’s $1.75T budget deficit continues to loom and fuels the fear within the Treasury market, and those who are watching their share prices are worried.
China is now also worried we are simply going to print our way out of this mess. In other words, we are going to monetize the our debt. Throughout history this has been done many times and in all cases the currency and local share prices COLLAPSE.
Shares took the widening of the yield curve very badly as the NASDAQ slide around 20 points in 20 minutes. Yesterday marked the 5th distribution day for the leading index: NASDAQ. Remember, between 5-6 distribution days signals you should be raising cash by selling laggards and trimming back your winners. Simply put, it is an insurance policy against further downside. You can see the state of the markets today here: http://www.livecharts.co.uk/share_prices/share_price.php
Moving back to the Treasury markets one does not have to look too far to see the collapse. Just take a look at TBT and TLT. Those two Exchange Trade Funds show the entire picture of what is happening in the market. The only way out of this mess for the Obama Administration is to slash spending and cutting taxes.
Our country simply cannot handle its current debt load and obligations and we are headed for a dollar and debt crisis. Look at how the dollar is performing, UDN shows what is happening to our dollar. America can survive and work herself out of this jam but she needs to act now and swiftly.
Looking ahead we have the durable goods number out this morning and GDP numbers our tomorrow. If we can survive both of these numbers we can base in this market. I noted in this post that we are getting long in the tooth regarding this uptrends. It is quite possible we are simply resting and allowing stocks to setup in bases. Although our Treasury situation looks bleak it does not necessarily translate into total destruction of the stock market. Remember, we have red flags alerting us to keep an eye on prices and lighten up on overweight shares in our positions, but that doesn’t mean to completely ignore potential setups.