Jim,
Ive posted this before, but it may be something to consider here, as the Fed has really been in this market in a big way, excerpt from Steve Briese’s book:
“Although it is true that commercial traders typically buy at bargain levels, and sell at premium prices, you may not be able to afford every bargain, especially as they become bigger bargains. Commercials are negative-feedback traders; they typically buy on a scale down, and sell on a scale up. But they have double protection from the losses that can mount from holding a position through an adverse move. With the belt and suspender security of deep pockets and offsetting cash positions, commercials can add to a long position on a scale down(or a short position on the way up) with near impunity while margin calls are doing in lesser traders. Speculative traders enjoy other trading edges, but regardless of size, speculators have finite leverage limits. (Think LTCM, Tiger Funds, Amaranth Advisors..) For most of us, better results will accrue from buying the moment the commercials quit buying. It is rare to see commercials stop buying before prices hit a bottom.”
I’m looking at the Fed as tantamount to a “commerical” here as to what they have been doing in the bond market via the QE2. It may depend on whether the shorts can still mount more speculative attacks while the QE2 continues. If the shorts can still start to push things down, the Fed may help them continue to collapse the prices by remaining the big scale-down buyer.
Might be time to short the spread?
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Matt Franko Reply:
February 15th, 2011 at 5:49 pm
Jim,
Ive posted this before, but it may be something to consider here, as the Fed has really been in this market in a big way, excerpt from Steve Briese’s book:
“Although it is true that commercial traders typically buy at bargain levels, and sell at premium prices, you may not be able to afford every bargain, especially as they become bigger bargains. Commercials are negative-feedback traders; they typically buy on a scale down, and sell on a scale up. But they have double protection from the losses that can mount from holding a position through an adverse move. With the belt and suspender security of deep pockets and offsetting cash positions, commercials can add to a long position on a scale down(or a short position on the way up) with near impunity while margin calls are doing in lesser traders. Speculative traders enjoy other trading edges, but regardless of size, speculators have finite leverage limits. (Think LTCM, Tiger Funds, Amaranth Advisors..) For most of us, better results will accrue from buying the moment the commercials quit buying. It is rare to see commercials stop buying before prices hit a bottom.”
I’m looking at the Fed as tantamount to a “commerical” here as to what they have been doing in the bond market via the QE2. It may depend on whether the shorts can still mount more speculative attacks while the QE2 continues. If the shorts can still start to push things down, the Fed may help them continue to collapse the prices by remaining the big scale-down buyer.
Resp,
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Treasury Spreads, Yield Curve Steepest on Record
http://www.minyanville.com/businessmarkets/articles/mish-shedlock-treasury-spreads-yield-curve/1/18/2011/id/32246?camp=syndication&from=yahoo
Ugly chart showing 10 yr peaking month before May 2010 sell off which led up to QEII.
http://finance.yahoo.com/echarts?s=%5ETNX+Interactive#chart3:symbol=^tnx;range=2y;compare=^ixic;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
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Yeah, I saw this yesterday after week spoke. Pretty amazing correlation. If it holds, it’s forecasting a 70% decline in the Nasdaq from here.
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