“Managed Retreat”? Leading To London Gold Pool Unwind As “History Doesn’t Repeat But It Rhymes” Scenario? – SD Weekly Metals & Markets

Decoding Bond Market Trends

During 4Q-2015, the Federal Reserve attempted to convince the world that the US economy would turn in a healthy 2016 performance, and that interest rate normalization was justified on economic grounds.  Pulling the trigger on a piddly “for show” rate hike in December came and went.

But a funny thing has been happening ever since.  A growing percentage of the conventional financial world has recognized that the Fed is trapped, and if the Fed attempts to push rates higher while the solvency crisis in the shadow banking system persists along with other global macro deflationary drivers getting worse, the numskulls pulling policy levers might very well amplify asset market corrections and crashes.  We can see the shift in thinking among market participants in the US 10 year bond’s trading over the last 3 months.

Through December, complacency remained.  But check out the crash in yields as money rushed into bonds, driving the price of the 10 year bond up.  That’s a big move, and it reflects a growing fear, at the margin, of a major economic downturn if not an outright financial market crash triggered by the ongoing problems in the shadow banking system, and the associated and causal dynamics of crashing energy prices and commodity prices in general (serves as collateral, as well as source of debt service financing cash flow), credit and industrial capacity bubbles in China (compels China to let the renminbi fall relative to the dollar, which creates deflationary dynamics worldwide), and other contributing dynamics.  In sum, the US ten year bond market is calling bullsh*t on the fantasy the Fed has been peddling.

What’s more, I’d make the argument that the snap-back in the 10 year bond and the short-term rise we saw in the 10 year yield in February was partially explained by the growing realization that the Fed’s fantasy of interest rate normalization will soon become untenable, and that even the Fed’s jawboning and propaganda in support of this fantasy will soon shift.  It’s not a coincidence that the bounce of the 10 year yield to over 1.80% came around the same period when Yellen was forced to launch a trial balloon about negative interest rates during her recent Congressional testimony.  Obviously, the Fed’s fantasy plan launched last December didn’t call for talking about the possibility that negative interest rates might be necessary.

During previous QE cycles, longer duration bonds fell in yields as the “official” purchases of said bonds and mortgage backed securities helped to push bond prices up and yields down.  That market intervention and acquiescence by bond investors created an unusual price/yield picture in the US bond market – and beyond.  On a going forward basis, Yellen and central banker numskulls are going to find that the “long end” of the Treasury Yield Curve – and investors that drive it – is not going to be so easy to influence.  We’ll cover these trends on future broadcasts.

Weekend Links

Next week should be a positive week for precious metals.  Here are important stories to consider, with a heavy emphasis on geopolitics given the rising tensions in the Syrian war theater:

• Terror in Turkey: Is Erdogan playing Washington?
• Risking Nuclear War for Al Qaeda? – Robert Parry
• No strategic divide between US & Turkey, only a division of labor – Dan Glazebrook
• Turkey’s Gamble: Syrian War Theater, Turkey’s Role – CrossTalk
• Syria And Munich 2016
• Washington’s Machiavellian Game in Syria – F. William Engdahl
• Soros (Seriously) Underestimates His Audience By Blaming Putin For EU Refugee Crisis – Robert Bridge

Thanks for checking out this week’s show.  — Eric Dubin, independent analyst and managing editor, The News Doctors.

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