I know the focus here is on forex trading, but it is always good to keep up with what other assets are doing. The equity story tells a one of strength while the bond story tells us one of weakness in the economy.
I am selling the equity story and I am buying the bond story as I think we are due for another crash in equity markets as we are building the same mess we did prior to the 2008 crash.
As a forex trader, which story do you go long (buy) and which story do you go short (sell)?
I got this morning.
Monday, July 29, 2013
Elliott Wave International | ElliottWave.com
We just released our updated Special Bonds Combo Report, geared primarily toward our new subscribers. It shares some of our most important recent commentary and analysis on bonds: a just-recorded 10-minute video from EWI Chief Market Analyst Steve Hochberg; a brand new bulletin titled “Three Myths About Rising Bond Yields”; and our 10-page warning to bondholders published last June.
With Detroit , Mich. , filing the largest municipal bankruptcy case in U.S. history last week – and because of the size of the failure showing that even “safe” bondholders will be hit too – the writing is now more than on the wall. It’s in bold, all-caps letters.
BONDHOLDERS BEWARE
Under the headline, “Detroit Takes Aim at Bondholders,” a July 20 Barron’s article explains the risk to investors (emphasis ours):
What makes Detroit 's bankruptcy interesting isn't just its size but that its restructuring plan could set precedents for treatment of bondholders. Detroit's emergency manager ... wants to lump in holders of Detroit's roughly $600 million in general obligation bonds -- that bedrock, sacrosanct muni-market investment -- with other unsecured creditors, such as retirees owed pension benefits, who collectively account for $11 billion of city obligations.
"There's no way to reasonably pay all of that [unsecured] debt," the source said.
The author, in financial news fashion, was careful to add this note: “Market observers still don’t see this as part of any trend.”
But that asterisk provides little comfort to Detroit bondholders, who rightly fear huge losses in their investment portfolios, and government retirees, who now face lower incomes.
You no doubt remember that residents in Jefferson County, Alabama, home of Birmingham – the nation’s 100th -largest city – faced a similar fate just two years ago.
While other market observers had not been able to see the broader trend, we did – and we still do.
Tech stocks, real estate, commodities, precious metals – the markets that all rose to manic levels one after another, have also fallen more or less together.
You can now add one more market to the list: Bonds.
About a year ago, Robert Prechter’s Elliott Wave Theorist joined EWI’s Elliott Wave Financial Forecast for a first-ever joint issue. Its title:
Major Top in the Bond Market: Bond Yields Are Poised to Begin Rising
It said: “Investors think that the issuers of all the bonds they’re buying will stay solvent and pay both interest and principle. We don’t think so.”
If one quote captures our bond forecast, it’s that one, published on June 6, 2012, just as the Treasury’s 10-year note had “plunged to the lowest level in U.S. history.”
Here’s what else the special joint issue said:
“If rates do begin to rise as we expect, most observers will probably be fooled.”
Soon after that, rates did indeed begin to rise – at first slowly, but then precipitously over the past two months. And yes, most observers have indeed been fooled.
But the trend is young. We think this market’s biggest moves are still to come, which is why we’re reissuing this warning today.
As an Elliott-minded investor, you – unlike most market observers – ARE able to see the trend. You are also able to prepare for it.
We just released our updated Special Bonds Combo Report, geared primarily toward our new subscribers. It shares some of our most important recent commentary and analysis on bonds: a just-recorded 10-minute video from EWI Chief Market Analyst Steve Hochberg; a brand new bulletin titled “Three Myths About Rising Bond Yields”; and our 10-page warning to bondholders published last June. You can access the Combo Report now either as a stand-alone resource or on the house with your risk-free trial to our flagship forecasting service for U.S. investors.
Follow this link for fast access to our updated Special Bonds Combo Report. The longer you wait, the more the pressure mounts on bondholders. Please prepare yourself now >>
Thank you for reading,
The EWI Team
I see the equity and bond markets are closely related to the QE3 fiasco that the FED has been caught up in for the last little while, as far as I’m concerned equity markets are going to keep rising for as long as Bernanke and the crew see fit to pump 85 billion of easy money into the country, much of which get sucked into the gaping maw of the financial sector and is turned into quick capital for equity investments.
The bond market speaks for itself, it would only make sense that bond yields are extremely low considering the FED is gobbling up 45 Billion a month in various maturity bonds, how can a bond yield possibly expect to grow under that much pressure.
So just the like us Forex traders, most other market participants are just as dependent on the decisions the FED makes regarding QE3. I think as soon as tapering becomes a very real and very looming possibility you will see the equity markets drop significantly as people take profits in advance of the soon to be scarce easy money that they became addicted too.