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December 9, 2008
I will probably end up looking really stupid,
but I still see Treasury Bonds trading
a LOT higher...
A few notes as to why...
Yesterday it hit me that bonds are on their highs and NOBODY is
screaming "BUY!"...Bonds typically keep going until you can hear
every analyst there is, who are seemingly never long when they
should have been, suddenly get wildly bullish...which again, is
certainly not the case yet. Quite the contrary, my perception is
they are all still looking for the top...just as they have been for
over 25 points now.
I have also become aware there is a lot of talk about a "bubble" in
bonds...Every time I've seen people talking about a "bubble" in any
market, it was either well before the top or long after it...In
other words, if all the talking heads are talking up a "bubble in
bonds" right now, it probably ain't one...Bonds are just on their
way higher and none of those guys own them.
I have clients calling me every day asking "Where do we short
bonds?".
I, myself, last week made the easy, and seemingly
logical, assumption, "They've gone up so much, they must be done
on the upside." I think I was wrong.
What is happening now reminds me of the 1986 bull market in
bonds (which was the greatest ride I ever had in them)...where
they are going truly straight up and everybody in the world is
trying to short them...and they just keep going and going and
going (see chart below).
My own mortgage company is calling me and sending express mail
letters imploring me to dump my 6.25% fixed for a 5.75% mortgage, at
no cost to me. Several of my clients have had the same happen to
them...I have long understood (or believed) that when lenders are on
the phones looking for borrowers, it means demand for loans is weak,
and to attract borrowers, they have to lower the cost of their
product, meaning cheaper money or lower interest rates (conversely,
when they have everybody beating down their door to borrow, they
will charge a higher rate). My guess is that demand for
money, specifically right now as we head toward the Christmas break,
and with everybody scared to death about anything economic, is just
about NIL...In other words, nobody is out there
shopping for a house, nor will they be until at least mid
January...Therefore, as regards the rate markets, we are at a point
where during the next 4-6 weeks mortgage rates could fall through
the floor as lenders take rates lower and lower looking to attract
borrowers...And that 5.75 rate my own mortgage company is offering
me could easily end up, I firmly believe, at 4.5%...or even lower.
If this is like some bull moves I've seen in bonds, it
sounds crazy, and I may be dead ass backwards about this, but I
believe they could be 8-10 points higher in no time at all...by
which I mean as quickly as within two to four weeks.
It may be lunacy, but I started getting long again
today...With options priced through the roof, the only way I can
find to do it is by just buying futures, putting stops in, and
hoping it doesn't immediately explode in my face...so this trade
is not for everyone. And this is not a trade I'm
willing to ride to hell and back before it works...If it backs
up too hard, I will just walk away from the idea (I think).
Give me a call if you are interested...
Thanks,
Bill
866-578-1001
770-425-7241
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