What We're Reading

We’ve been bulls on 30-year Treasury bonds since 1981 when we stated, “We’re entering the bond rally of a lifetime.” It’s still under way, in our opinion. Their yields back then were 15.2%, but our forecast called for huge declines in inflation and, with it, a gigantic fall in bond yields to our then-target of 3%.

The Cause of Inflation

We’ve argued that the root of inflation is excess demand, and historically it’s caused by huge government spending on top of a fully-employed economy.  That happens during wars, and so inflation and wars always go together, going…

When first-generation ETFs launched in the 1990s—such as the SPDR S&P 500 Trust (SPY) and the PowerShares QQQ Trust Series 1 (QQQ)—lead this year's outflows, that is a sign that institutional investors are scared. These first-to-market ETFs have the ample liquidity that big institutions tend to love, with many trading more than $500 million in volume a day. While newer ETFs that may do the same thing or more for cheaper have been launched in the intervening years, early ETFs still tend to curry favor with large investors that value liquidity. These investors tend to be more tactical, and thus outflows from these ETF stalwarts are a bearish sign. 

U.S. Treasuries of all maturities are raking in cash

According to…

The U.S. posted a record cross-border investment outflow in June as China and Japan reduced their holdings of Treasuries and private investors abroad sold bonds and notes.

The total net outflow of long-term U.S. securities and short-term funds such as bank transfers was $153.5 billion, after an inflow of $33.1 billion the previous month, the Treasury Department said in a report today. The June figure, and $40.8 billion in net selling of Treasury bonds and notes by private investors in June, were the largest on record, the Treasury said.

“Right at the beginning of June, you had a very strong sell-off of Treasuries and that’s what frightened a lot of private investors,” Gennadiy Goldberg, U.S. strategist at TD Securities USA LLC in New York, said by phone. “As yields stayed lower in subsequent months, some of the…

With so much money flowing into bonds and treasuries (TLT shown) in 2014 while the stock market rose, one must wonder..........which one is going to give?  (click chart to enlarge)

Certainly it would seem not everyone believes the economy is strong enough to support future earnings and rising profits.

Is the five-year bull run finally running out of steam?

• This day in 1896: The Dow Jones Industrial Average is first published. Its 12 initial members are the great industrial giants of the time: American Cotton Oil, American Sugar, American Tobacco, Chicago Gas, Distilling & Cattle Feeding, General Electric, Laclede Gas, National Lead, North American, Tennessee Coal & Iron, U.S. Leather, and U.S. Rubber. The index’s value that day: 40.94.  Source: Phyllis S. Pierce, ed., The Dow Jones Averages 1885-1980 (DowJones Irwin, Homewood, IL, 1982), introduction, not paginated; http://averages.dowjones.com and JasonZweig

• Very odd the move in treasury yields today on the better than expected NFP number.  Maybe "smart money" is telling us the economy is not as strong…