Treasury Weakness Presages Failure of Bernanke QE Policy

The US has to borrow $1T over the next four months.  And Bernanke wants to keep mortgage rates low to spur a housing recovery, hence has announced Quantitative Easing (QE), the purchase of Treasuries and other US Agency Debt by the Fed directly, which has the effect of printing money, at a premium price, which has the effect of driving rates down.  How is it working?

Well, this dog ain't hunting.  At today's Treasury auction, the yield curve got to the steepest in history.  "Benchmark 10-year notes were down over a full point and yielding 3.68 percent, up 12 basis points in just one day, having risen nearly 1.25 percentage points in just six weeks. ... As the selling deepened, the 30-year Treasury bond fell nearly a point, pushing its yields six basis points higher to 4.56 percent."

As CNBC reports: "Spreads between the 2-year and 10-year widened by over a dozen basis points on Wednesday alone.The 10-year saw its yield move above 3.70 percent, after trading at 3.55 percent the previous day." 

The Fed is being gamed by the bond market: 

The Fed, meanwhile, has been an active buyer of mortgages in an effort to keep rates lower, and until the last couple of days, selling in Treasurys did not ripple into the mortgage market.

On Wednesday, mortgage spreads widened sharply. In the last couple of days, there have been some dramatic changes.  For instance, David Ader of RBS said a Fannie Mae mortgage with a four-year duration has seen its duration extend to 5.7 years as rates moved higher in just several days.  To hedge that move, traders would sell long-dated Treasurys, forcing yields even higher.

(Mortgage bond dealers often sell Treasurys to hedge against the risk of early repayment by borrowers, which alters the overall duration of the investor's portfolio.)

The 30-Yr fixed mortgage jumped 30% to 6.5% in one day.  This should correct back down, but the moves in Treasuries and mortgages are absolutely huge.  

Speculation is that the foreign holders (including China) were buying the 2-year and selling the 10-year bonds.  

As the long rates rise, to make QE work, Bernanke may have to commit $Trillions over the next few years.  Does this make sense?  It risks hyperinflation,  Alternatively, the bond market is calling his bluff and he will be out of tools to try to keep rates low  They will have to rise to attract investors to fund our deficit. And this bodes very poorly for stocks, let alone any recovery of the economy. 

Comments

[mttoolkit]

its interesting to see this analysis coupled with Neely's stock market crash scenario and deflationary spiral

[Mike McQuaid]

S&P 500 alternate pattern. March 6 trend reversal, 1 wave March 25, running correction a wave March 30, b wave May 8, c wave still underway. When c wave completes stick the 0-2 trendline on the chart.
I favor this count over my previous view because of the channeling.

[Sahil Kapoor]

market itself is devaluing the USD, which in turn is making commodities expensive in USD terms. USD is going to rebound strongly and fed will fail to stop the carnage.

The rise in oil prices is coming to an end. See this link - http://sahilkaps.blogspot.com/2009/05/elliott-wave-analysis-crude-oil-nearing.html

[Glenn Loser Neely.]

URGENT MARKET UPDATE...

Von Hochberg is publishing tomorrow the monthly newsletter. Lets wait to read what he has to say, and we will decide upom that.

On the other hand, YASI has not called me. I wonder if my bad breath has anything to do with it?

Anyway, the waves told me that is time to sell again until I have a date with a wonam (in another 25 years)....

Glenn Loser Neely

[A Friend]

How much money did you lose following Neely's advice?

How much money are you losing by posting angry, passive-agressive messages instead of, say, working?

Is it less than the cost of a few psychiatric sessions?

You don't have to be imprisoned by the past. Everyone makes mistakes. It's time to move on. Don't waste the rest of your life.

[It's too late for GLN]

Unfortunately, he's passed Neely on the road to loserdom. In fact, if you picture that road as running around the Earth at the equator, GLN is about to lap Neely for the 2nd time on that road. Man, that's a lot of miles GLN has logged on that road. I'm tired just thinking of it.

[A Fan]

I, for one, am glad he's published those Loser messages. I was about to subscribe to Neely's letter when I read one and changed my mind.

Keep posting! They are a riot! I love it when "Neely" says he is such a loser. That part cracks me up.

[vipul garg]

any one tracks baltic index??whats happening there

[NeelyFan aka mttoolkit]

neely saved me 60K in losses because of his predictions about the stock market crash...who knows how much more he will save and earn me due to his current prediction about the final leg

[EN]

It looks like the indices are forming a pennant formation (triangle). They could either break out of that formation to the downside (ending triangle) or the upside (continuation triangle).

In other words, the market could go up or it could go down or it could remain in this tight range until it goes up or down. However, the longer it remains in this tight range, the bigger the breakout will be when it does occur.

In the coming years, taxes will increase in most countries to pay for all these "bailouts". When they get too high for me to bear, I will quit working and live off my gold, ensuring that I buy only the basic necessities. No more car, no more tv, no more restaurants, no more running water, no more computer to view Yelnick's site, etc. If we all do the same perhaps we can bankrupt the government and start over. We need to start a revolution my friends.

[Forkoholic Serge of Elliott Wave Forkology]

Elliott Wave Forkology Update May 28th
Our bullish setup on Bonds didn't work out. Bonds broke Blue Fork support, retested it from below and started drop again remaining inside Purple fork. Looks like our asian masters started dumping US Treasuries with increasing speed. So Treasury Secretary Timothy Geithner flying to China to beg for more money :) On a 2nd look $USB looks like our Echo fractal. it's called Echo coz it always return to u! lol
http://forkoholic.spaces.live.com

[mttoolkit]

who is hochenberg and yasi?

[Glenn Loser Neely.]

mttoolkit

Yasi is a friend of Yelnick, that I am trying to date. It would be my first date in 25 years!!

Hochberg is my personal finance advisor from Elliott Wave.

And Yelnick is my personal promoter...

Glenn Loser Neely

[I always thought Yelnick was promoting EWI, not Neely]

I always thought Yelnick was promoting EWI, not Neely.

However, from his posts, I can tell he really appreciated the work of Zoran Gayer as much as anyone's.

[tony123]

Forget about Neely. Check this site http://thinkingtrades.com

It's a subscription site but he is posting live for some time. Check the archives. The very first post in Oct'08 called the crash to the day. No frill site but as the name suggests, this guy really seems to have his thinking hat on.

[Rob]

McHugh had a phi-mate turn date of September 19, 2008 which signified the start of the crash to the day. The crash did not start in October 2008.

[da bear]

Prechter talks about the spike in (Treasury) bond yields early in the Great Depression. then Treasury bonds fell again presumably.

this could be our spike. collapsing credit with a collapse in treasury prices then makes the Fed tighten liquidity more and raise rates forcing more deflation.

either that or hyperinflation.

da bear

[I. Sosceles]

"It risks hyperinflaton."

They want hyperinflation. Get with the model.

[Upstart]

I've been counting the DOW a completing an expanded flat Thursday last week. The c was a classic sharp drop and crystal clear five.

[Glenn Loser Neely.]

ULTRA EMERGENCY UPDTATE
NEOGARBAGE: Unauthorized Distribution by the Neo Garbage Illuminati

I'm asking for your help to make insure access to our valuable ultra secret trading information is ONLY within authorized circles (losers and gamblers).

I have beem told that an old secret society called "the Illuminati" are posting my Neo Garbage in many blogs like this one.
Last weekend I saw the movie "Angels and Losers" and I understood the power of this secret society. I will find them and destroy them.

If you know of ANY sight or person that is releasing my ultra secret Neo Garbage Trading advice for FREE, please let me know immediately. I will call Superman, Homer Simpson and the Justice league to haunt them and jail them in Disneyland.

Make no mistake... I am VERY serious about this!

Please understand that I make my living from selling my garbage. If everybody has access for free to my garbage, I will not have enough money to keep my camping tent at Central Park in NY.

Glenn Loser Neely
Neo Garbage Inc (toilet incorporated).

[Upstart]

Doubtful that we have another triangle right after the one that took up most of April.

[mttoolkit]

if anyone has taken Neely River Theory like me, email me at [email protected]

id like to discuss

[Glen Loser Neellly]

I am a Loser. I convince people to buy my service and then I give them bad avice.

[mttoolkit]

Hey GLN

Why are you so angry?

[Loser Glen Neeely]

I'm not angry. I'm just a loser. I make pretty good predictions but I haven't been lucky in other areas of my life, I guess. My whole life is the markets. Feels kinda empty. I have low self esteem. I think I'm a loser.

[Glenn Loser Neely.]

Please be aware that "Loser Glen Neeely" is my cousin.
I am the real loser here!.

I called YASI and she is not answering. I wonder if she is cheating on me?

Does any one has a female/male friend that I can date?
Please write me to:

[email protected]

thanks.

Glenn Loser Neely

[anon]

this Neely stuff is pointless...if Neely is bullish, he will be correct..if he is bearish, he is a clown in need of professional help.

The market is NOT going to go down..it is inconceivable. I buy SPY calls and ESM9 on daily basis and make a lot of cash

The only dip is to lure stupid bears, so they can be squeezed.

i plan to add more calls if there is any weakness on Monday, which there wont be

[Loser Glenn Loser]

I am a loser. No matter how right neowave is, no matter how strong my record has been for the past two years, I cannot fail to admit that I am a loser.

Being right isn't everything. I suck at everything except the markets.

[Forkoholic Serge of Elliott Wave Forkology]

Prechter interview
mms://media2.bloomberg.com/cache/voiYckQWJmpw.asf

[Glenn Loser Neely.]

I wonder why Bloomberg or CNBC never makes a serious interview with me??
the creator of NEO GARBAGE!!
the one and only Glenn Loser Neely...

Losers!

[Mike McQuaid]

The S&P 500 primary scenario remains the March 6 reversal followed by a running correction. Wave 3 is next after the May 8 b wave label and the brief triangle c wave to May 21 to complete wave 2. Wave 3 should be gangbusters. May 8 & 20 tops went to 1.618 of wave 1 in March and fridays action set the stage for this line to break for good next week.
NDX acts to confirm this action serving up a 50-200dma golden cross while the price is north of the 200dma. The Bollinger bands (20,2) are offering several bullish confirmations as well.

[george]

forkoholic serge,
thanks for the pretcher link.
he really detailed what his
future outlook is. if anyone
has a recent link to a glenn
neely interview i would like
it posted. i have never
seen him interviewed.

[kevin]

mttoolkit -

I take it you are new to this blog. Most people here simply ignore the poster above. You would be up 60% YTD following Neowave's weekly trade rcommendations.

KS

[Rob]

Mike McQuaid:

I don't put much stock in the golden cross you are talking about. Some technicians I follow define a bull market as when the 50-day EMA crosses above the 200-day SMA. Both the NDX and COMP wil take some time yet to achieve that.

[Loser Glenn Loser]

The reason I do not give CNBC interviews is that I let my record speak for itself. I am a winner when it comes to the markets but some people who risked too much money have not grown up and post "Glen Loser Neely" posts. I guess I am a loser. But I'm a rich and successful and wise loser. And, hey, if you can't stand the heat, get out of the kitchen.

[DG]

We just barely made it back into the channel tracking the lows and highs since April 1st, after spending the better part of the past week outside and below it.

Contrary to the superficial "analysis" being offered by the bulls, this is a clear and objective sign of market weakness. If the market were strong, we'd be hugging the top of that channel and would be at around 980 on the S&P 500 now.

[Forkoholic Serge of Elliott Wave Forkology]

>If the market were strong, we'd be hugging the top of that channel and would be at around 980 on the S&P 500 now

We were working long term stoppage fork almost whole month and closed above it

http://rjt0yg.blu.livefilestore.com/y1pgjHeX5oPS4hA8Z7W5QlS10YSmoJUIqe1GOn7b5Sv7fOOfuEaIzAjg2LjFHUliuVN99nuIVV_u1FMUvMPTBB4JYQDelUQiO_0/spxstopfork.jpg

[DG]

Serge,

For whatever reason, that link didn't lead to an image for me.

While long-term channels certainly need to be respected, right now, the market is not strong and is definitely in the lower half of the channel of most immediate relevance and we have basically gone nowhere for the past three weeks. Consolidation before a renewed run up? That's possible, but really doesn't fit the structure I'm seeing in the market right now.

[Upstart]

I still liken this to a mini version of the Nikkei rally(beginning early 2003)/triangle/rally. There was a deep correction early-on in the post-triangle rally. Then the Nikkei blasted off. That's analogous to this flat correction of May following the April triangle. Back to back consolidations lead to a final big push.

[anon]

i assure you that even if a NUCLEAR war were to break out, say North Korea nuking Japan, or something..this market will NOT go down. nuclear war would be considered bullish. this is the reality for the bears, they had their day in the sun and now they are finished.

there is NO piece of news that CNCBC will spin in a bearish fashion.

my SPY calls closed up over 40% in one day!

Bernanke is to bearish speculators as Sherman was to Atlanta..hehe

[Rob]

I meant to say a bull market is when the 50-day EMA crosses above the 200-day EMA, not 200-day SMA.

Having said that, my call is for a pullback into June 16th (the day before stocks trade ex-dividend) and a rally to July 15th - July 17th. July 15th is an important Bradley model date and July 17th is McHugh's next phi-mate turn date. He also has a Fibonacci cluster window from June 9th through June 17th. I also follow Tim Wood. The average trading cycle low is 39 trading days from the preceding one. The previous trading cycle low was April 21st. 39 trading days hence is June 16th.

Another technician I follow says there are some cycle lows due in mid June.

Don't be surprised if the market tries to move higher on Monday and rolls over.

There is a spate of economic data throughout the week, none of which I suspect will be market friendly.

The rally in the last 20 minutes (or less) on Friday, likely removed a few hundred million shares of buying power from the market.

[Forkoholic Serge of Elliott Wave Forkology]

Don't u love NASA scientists?! lol :) Solar Cycle 24 will peak, they say, in May 2013 with a below-average number of sunspots.

But geomagnetic storm of 1859 occured during similar size cycle and if a similar storm occurred today, it could cause $1 to 2 trillion in damages to society's high-tech infrastructure and require four to ten years for complete recovery

http://forkoholic.spaces.live.com/blog/cns!233C658FDE78D41A!583.entry