TLT TMF and Treasuries in general

[jonnyfrank]

SOL,

You have had TLT and TMF as buy candidates for some time now. Can you get a little deeper into the bond market and how it correlates with the FED decisions in your next newsletter? I am trying to learn more about bonds and own some of the TMF as a small percentage of my portfolio. I am simply trying to figure out how TLT can potentially run to 120+ in the current inflation environment. I don't understand the bond market very well, and need some insight. Thank you.

[MarkD]

Here is how I view the behaviour of LT bonds from a TA perspective. No fundamentals, and recognize there is that potential large sell off that Sol has discussed later this / early next year. Flight to quality.

https://ibb.co/Gcb3W7j

[VisualizationViking]

SOL,

You have had TLT and TMF as buy candidates for some time now. Can you get a little deeper into the bond market and how it correlates with the FED decisions in your next newsletter? I am trying to learn more about bonds and own some of the TMF as a small percentage of my portfolio. I am simply trying to figure out how TLT can potentially run to 120+ in the current inflation environment. I don't understand the bond market very well, and need some insight. Thank you.

If I recall correctly, Sol mentioned in an update sometime ago, that the rally in TLT would fade and that it would probably test 90, before continuing its trend. Judging from the charts, I tend to agree. Bonds might not make you wealthy, but they offer a decent return if played properly, unless you are leveraging and trading TMF. I've begun buying again and plan to keep purchasing, particularly in the 88-89 range. To see a sustained breakout, TLT needs to breach 101.

[SOL]

SOL,

You have had TLT and TMF as buy candidates for some time now. Can you get a little deeper into the bond market and how it correlates with the FED decisions in your next newsletter? I am trying to learn more about bonds and own some of the TMF as a small percentage of my portfolio. I am simply trying to figure out how TLT can potentially run to 120+ in the current inflation environment. I don't understand the bond market very well, and need some insight. Thank you.

Apologies for the late response. I actually addressed that in the recent market update, particularly in the long-term outlook section. Bonds are poised for a robust rally. TLT ollowed the first part of the move to the upside, rallied, and then experienced a pullback, nearly testing 89. TLT could still test that level.

The Fed has already indicated that lower rates are on the table as the US faces economic challenges, particularly in managing interest payments on the outstanding debt. As for how high TLT will climb, that's a separate question. It should, however, at least test the range of 124 to 129 before encountering some resistance.

[jonnyfrank]

Thanks for the replies. To clarify, I am trying to justify and rationalize how bonds can go up when inflation persists and persists. I see the charts, I understand the rationale, but in the face of relentless inflation and fudged fed spin on the "robust" economy based on job reports that are inflated by federal jobs how can this bond rally actually happen? Cognitive dissonance is often a bear to wrestle with, lol.

I appreciate all the responses. Bonds are not an area I know much about, so I am trying to learn more. Thanks for you patience. I hope I have clarified my reason for being persistent on this TLT/TMF thing. I do sense a great opportunity, but I am trying to quantify why.

[jonnyfrank]

I am curious as to how the Fed lifting the inflation target to 3-4% would be bullish for bond prices? Would that announcement lead to higher rates on the 10 year?

[MarkD]

I can't provide any answer to that inquiry. But the market actually sets interest rates, not the FED.

As an example, the treasury has an auction to sell bills and bonds. Demand determines how well bid the security at listed interest rate is absorbed by participants. That is the primary market. For all treasury securities, short term lending to 30 year bonds.

After those income securities are sold by the treasury, the secondary market determines the rate on a moment to moment basis based upon the action of market participants.

That means, to some degree, the primary impact the FED can make is on Fed Funds and the Discount rate, which are directly executed with member banks. These impact what participants are charged to borrow from the Fed. Tbh, it's much more complicated than I can explain.

I believe member banks (particularly JPM ATM) have more influence via bank loans on market rates.

https://ibb.co/Mk9hRfX

Two sources of info I have read (going back awhile, might need to revisit) are
-Invest with the Fed, Robert Johnson
-George Dagnino (three books plus I follow on Twitter/X)

[jonnyfrank]

I am looking for more insight as to what can actually move bonds right now especially in light of stubborn inflation.

[MarkD]

According to my reading, PPI (USA) came in lower than CPI would suggest. Ed Yardeni among those who made this assessment.

And CPI was severely impacted by .... insurance rate increases. Not wages. Not commodities. Financial pirates.

I believe the FED, Congress/Executive Branch, and wealthy are artificially creating temporary bouts of inflation to steal from you and I. Deflation would reduce the value of their bounty by a considerable amount relative to common folk. The only instrument available to them to remain ABOVE us is financial engineering.

China, India, and more to follow are deflationary forces, which negatively impact the wealth of the 0.1%. That's why the message always says deflation is much worse than inflation. If you lived off of your own labor deflation ain't bad. But if you live off financial assets, and create no value except b.s. and faux power fantasy of the so called elites, lmao. Anyone falling for the grift is in sad shape.

Sol noted how Indonesia is destroying the commodity complex In Australia. That's just one example imo.

When folks wake up sometime later this year or next, the catalyst will be deflation is winning. The west can't keep airplanes flying for God's sake. And Asia builds back better for less. That will result in an equity top and a bond market bottom. Rates will plummet overnight, stocks will dump.

I will transfer short term tbill funds into long term bonds and then stocks. Same old game. New catalyst.

[jonnyfrank]

I noticed that 22 percent insurance increase. Based on your observation, one would think the Fed would decrease rates which would then be a further catalyst for inflation, no? So….

[MarkD]

My two cents, Fed is done hiking. But it will be some time before they cut. Absolutely need time to get the inflation rate down. Where I live costs are still stubbornly high. Businesses still looking for warm bodies.

I read it's not good in bluer states (duh!) but down south in the USA it's still doing great. And the reshoring of some industry is costly. If the US had remained a business partner with China, rates would still be near zero imo.

LT I believe deflation is still the outlook. China and India are exporting deflation. US citizens might buy local but a lot of stuff comes over from Asia and there's not much change going to happen in that regard. May have some high end goods like Semiconductors manufactured stateside but most stuff is not restoring, hence, deflation.

[Budge]

My two cents, Fed is done hiking. But it will be some time before they cut. Absolutely need time to get the inflation rate down. Where I live costs are still stubbornly high. Businesses still looking for warm bodies.

I read it's not good in bluer states (duh!) but down south in the USA it's still doing great. And the reshoring of some industry is costly. If the US had remained a business partner with China, rates would still be near zero imo.

LT I believe deflation is still the outlook. China and India are exporting deflation. US citizens might buy local but a lot of stuff comes over from Asia and there's not much change going to happen in that regard. May have some high end goods like Semiconductors manufactured stateside but most stuff is not restoring, hence, deflation.

The question is would you want to own bonds in a country run by this bunch of nutters/arseholes? I don't think so. Who held most of our debt? China. OK, let's piss them off to the Nth degree and see how that works?! They divest. What model do we then adopt? The Japanese: Central Bank buys in the debt. Hmmm, not sure that's a good thing.

To get an idea of how this crown of clowns approach debt, let's look at the change they made for us ordinary punters buying it:

The US Treasury stopped issuing paper savings bonds in January 2012, switching to online platforms. There is a slight exception where a paper Series I may be purchased with proceeds from a federal income tax refund, but they are extremely rare. What they failed to explain is that US banks are NOT required to cash in these bonds.....

According to Treasury Direct, “Banks vary in how much they will cash at one time – or if they cash savings bonds at all.” We have seen numerous banks fail and begin to consolidate. Regional banks are struggling with liquidity, and larger institutions simply do not want to hand out cash if they’re not required to do so.

...now it will be a difficult task to snail mail personal information to the Treasury and await a response. Yet another strike against purchasing government debt.

https://www.armstrongeconomics.com/arms ... govt-debt/

The acquisition of physical assets versus "safe" government debt is all about confidence. If your country is being run by Neocons and climate extremists via a ventriloquist dummy, you probably want to put your faith in physical assets.

We are not done with inflation and are entering a period of stagflation but what might help TLT is when we go to war against (name any country not part of NATO) foreign funds may come here for safety, like in previous world wars and some may slop over into US debt.

[jonnyfrank]

So basically TLT and TMF are not good buys, even at these prices. It seems with the variable of inflation, the charts and sentiment don't really matter is what I am gathering. That is the conclusion I am drawing from the responses to my posts. So, I will not average down at these prices, even though these were the recommended buy points. I will simply hold the TMF and TLT I have and wait.

[MarkD]

I sold 90% of my position on the way up earlier this and late last year. And hold BIL ATM (1-3 month tbills at 5% range. As TLT/TMF drops I will be moving a decent amount into those from BIL.

I agree with TI recommendations on this trade. We are Japan possibly but the op for a 35% return is worth it imo.

[jonnyfrank]

Thanks for the posts. I still don't understand how there can be hope for this holding when ST inflationary pressures are real, and there is no real insight on that here. From a technical perspective I get it, but fundamentals are screaming in the opposite direction. At this point, I am watching closely and based on what I am seeing if rates go to 6 then TLT goes to 70 or so. What am I missing?