Friday was an upside day for Treasury bond prices, as the 30-year equalled or minimally breached its low of the prior cycle of 4.10 in 2003. A technician opined to me that a standard charting technique had "confirmed" a bull move was underway in this issue, with a yield target of 3.50%. A different technique that I use, called "eyeballing" the chart, suggests 3.7% is a first target. The 'TLT' proxy for the long Treasury continues to move up strongly and will continue to rise if the 30-year issue goes well below 4%.
This occurred as the ECRI's Weekly Leading Index Growth Rate went to yet another all-time high, and the yield curve tightened, with the yield on the 2-year Treasury rising while the yield on the 10-year falling. Perhaps in sympathy with a sense that the best of times has ended for financials, JPM and BAC were among the participants in a broad drop in price for financial stocks. There is tremendous risk in these names for at least a few months.
Silver dropped 1 1/2% today, triple gold's drop. Gold continues to act like a store of value. The feeling at EBR is that having been burned by the unreal tech names a decade ago and the more amazingly unreal financial names such as Fannie and Freddie last year, investors will continue to want physical ownership of real things such as metals, but with enough faith in the underlying financial system to trust exchange-traded funds to hold the metals for them. This blogger prefers for core holdings to own ETFs that actually claim to own nothing but metal, meaning essentially no "derivatives" (e.g., futures contracts on the metal). However, for trading purposes, an "impure" ETF such as GLD is more liquid than a "pure" one such as GTU.
After quadrupling in the past 8 years, physical gold is probably at fair value relative to many ways to value it.
It may however be analagous to the NASDAQ in 1995 or 1996, with much more upside to go (even if unjustified). The NASDAQ tripled in the 8 years beginning in January 1988, then went up 5 times in the next five years.
Among stocks, the more internationally-oriented McDonald's rose on a down day, while the largely domestic name Wal-Mart took a serious tumble (for it). These were the only 2 Dow 30 stocks to rise in 2008, but their prices have diverged this year. MCD raised its dividend 10% and now yields close to 4%, with steady rises in the dividend appearing likely in years to come. Growth and income. The problem with the general stock market and the NAZ in particular is that growth without current income to stockholders is problematic, especially when the earnings somehow never to simply show up as unencumbered cash on the balance sheet.
Quarter-end window dressing aside next week, the growing technical strength in the long Treasury bond is adding to the headwinds that stocks face; what if the Japan scenario is truly in the cards?
(Those who watch the headlines will notice that the G20 meeting and the wasted breath on the Iran nuke situation are being ignored here for now. The first is toothless and the second is old news to the governments involved. Markets are for now moving to a different rhythm.)
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