Someone forgot to tell the U.S. Tbond investor the U.S. economy is fantastic. They also forgot to tell the Tbond investor to be afraid because the Fed –the largest buyer of Tnotes & Tbonds via QE3– is backing away, and that the price of US Tnotes and Tbonds is supposed to drop.  Yes, yes, interest rates are going up — the perennial refrain from most of the investment industry.  Noise.

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A 5 month rally in the US Tbond that generates a 12% gain is not a short covering rally. I’m not planning to own my TLT position for the next 10 years. But as long as the U.S. economy continues to slip gently into recession (no GDP growth after the Q2 bounce back out of a hole), and as long as the ECB does not announce QE, why not?


Oh yes, this week’s Greedometer newsletter was posted earlier. Here are some snips:

  • The VIX dropped to the low 11s last Friday.  That’s extremely low.  A  very low VIX reading is an expression of widespread complacency. It is also an expression of high stock market risk.  A VIX in the 11s means fear is on vacation.  This is a requirement for a secular stock market peak.
    • At the August 2000 launch point (crash start), the VIX was in the high 16s.
    • At the October 2007 launch point, the VIX was in the 17s. Mind you it was in the 10s in February 2007.
  • The Put/Call ratio on the total US equity market is very low. Another sign that fear is on vacation.
  • S&P500 breadth looks a lot like it did in October 2007.
  • The S&P500 CAPE is in the mid 25s. Every time this happened (3 time periods in the past 130+ years) tragedy followed.
  • NYSE margin debt began rolling over in March –after obliterating every previous margin debt record reading. More on this in the Advanced Access section.
  • S&P500 as-reported profit margins have been the highest in decades (ever?) over the past year and have started rolling over.
  • Epic, unmatched levels of insider selling have been seen in the first 5 months of this year.  Much like in 2007, but even higher.
  • Junk bond sales set new records for volumes and low yields earlier this year. The U.S. junk bond sector is now trading with a 5% premium.  That’s nosebleed over-priced levels. This is a classic sign of reaching for yield by assuming too much risk. Junk bond prices are correlated with the stock market.
  • Share buybacks for Q1 (and the 2 quarters before this) were the highest since before the 2007-2009 crash. More in the Advanced Access section.
  • U.S. Tnote & Tbond yields have been dropping over the past 5 months —- despite the biggest buyer exiting (the Fed).
  • And one of my favorites:  Advisor Sentiment has been wildly overbought for the past 6-7 months.  There’s a lot of air to be let out — and it is — but slowly.