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May 23, 2014


I am still long and still buying Treasury Bonds

While the financial world has lately taken loud note of the fact Bonds have been going up, and long term rates going down…which is 150% dead opposite of what 99% of Wall Street has been predicting…I see no evidence whatsoever that the bull move begun in January has come to an end. In fact, I continue to think the move is only just getting started…and stands a good chance of now shifting into a much higher gear than the grind higher we have seen since early February.

Experience has taught me that Treasury Bonds typically finish bull moves quite wildly, not in the slow motion up move seen recently, and to demonstrate what I mean by “wildly”, what follows here are 21 chart observations of how virtually EVERY bullish Treasury Bond phase has ended during the past 33 years.

What I’ve done below is note where each bull move essentially ended, then looked backwards a few weeks at the price action that preceded the market reaching its peak. Some of my start points (^) were therefore arrived at somewhat arbitrarily but the intent here was to clearly show you one thing: Bull markets in Treasury Bonds almost always end with a price spurt that I would describe as being approximately 5-8 points in 5-10 trading days.  Obviously, just because something has happened repeatedly in the markets for 33 years definitely does not mean it has to happen again but I am more than willing to go with the odds (and a number of other factors that tell me this move is far from over).

See for yourself, then tell me if you think the current bond market chart following all these examples has even begun to resemble any of these 21 bond finishes during the past 34 years.

34 years of how bullish Treasury Bond moves have finished

 On some of them I noted several different size timeframes as the market was reaching its high…Again, the whole point here is BONDS DO NOT FINISH “QUIETLY”.

5-20-14sept80bondtop.png 5-20-14dec82bondtop.png5-20-14june85bondtop.png 5-20-14june1986bondtop.png

5-20-14march88bondtop.png 5-20-14march1992bondtop.png

 5-20-14sept93bondtop.png 5-20-14june95bondtop.png

 5-20-14dec95bondtop.png  5-20-14dec98bondtop.png

 5-20-14dec01bondtop.png  5-20-14dec02bondtop.png

 5-20-14june03bondtop.png  5-20-14june03bondtop.png

 5-20-14march04bondtop.png  5-20-14june05bondtop.png

 5-20-14dec07bondtop.png  5-20-14march08bondtop.png

 5-20-14dec08bondtop.png 5-20-14dec11bondtop.png


Those are all the histories…And here is the current bond market…

Compare this move to how all those previous bull markets ended.


For all the reasons I have expressed at length in previous newsletters (which can easily be found in the newsletter archives), I still see the Treasury Bond market as heading for the 150 area during the next year or so…Fed Tapering doesn’t matter…Inflation doesn’t matter…A 1000 talking heads telling you “rates have to go up” doesn’t matter. There is a globe full of buyers  who HAVE to buy quality fixed income debt EVERY day, no matter what interest rate yield the instrument provides. US Treasuries are the safest piece of long term paper on the planet and the entire world’s bond buyers have been gobbling up every long term debt instrument the United States issues…and they will continue to do so. BONDS ARE IN A BULL MARKET. Rates DON’T have to go back up. They can stay at these levels for years…which is exactly what I expect to see.


Here are some options I like at current levels…I absolutely believe Treasuries will have hit at least 143-144 within the next 2 to 3 months.


As I often point out, I do get my own impressions about markets and opportunities as I take what is in my head and transfer it to this newsletter. Here is a great example…As I laid out this next chart, and went looking for current option prices, all I could think when I saw the September 138 call priced at 1 19/64 was, “UNBELIEVABLY CHEAP”. The cash market is probably 137 ½ right now. And with my knowledge of what bonds CAN do?


Here’s a little more leverage…but one month less time.


And here is a very smart 2 and 1…


And here is Ed’s explosion position…wherein the idea is the you buy one at-the-money call and a five of out-of-the-money’s. If the position begins to work, you sell the at-the-money call as soon as it profits enough to pay for all the options, then hold the remaining calls with the idea the value of the position can “explode” from there. Obviously, if Bonds do not move up, you could lose 100% of what you have invested.


Here is the updated long term chart…


Take another look at this chart and ask yourself if 144 looks like a big move from here…Sure doesn’t to me.

Give me a call if you have an interest. As always, I love to talking to all of you, whether it’s market related or not…

I’ll cover Cocoa, Cattle, Stocks and Soybeans within the next few days.





The author of this piece currently trades for his own account and has financial interests in the following derivative products mentioned within: Treasury Bonds

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