The epic move in bond yields continues. "Waterfall" anyone?
The horse has officially left the barn, folks. It’s barreling down the road. Fast. 10-year Treasuries have officially gone completely convex at this point, spiking to 2.64%, its highest level since August 2011. That’s over 100 basis points since early May.
If you were smoking the funny stuff and buying bonds when they broke through the 2.41 line on the Treasury curve, to me that would be the equivalent of buying US stocks in October 2008. You can make a serious mistake being too early there—you do not want to be too early. When you’re coming off a three-decade high, and it breaks its most important line, you do not get in the way. It’s common sense.
One quick observation on market reaction to this move: Beware talking heads. You’re not going to get good advice when bubbles begin popping, because people long bubbles don’t want to see them pop. For example, if you get a big bond manager on the tube right now, he’s going to be doing his best to get Bernanke to stop tapering and to devalue the dollar. It’s wrong on a number of levels and borderline un-American.
Meanwhile, myriad mediocre and myopic financial commentators following these market savants have their own conflicted intentions. Avoid their “advice” at all costs. Getting in line behind them isn’t entirely different than lemmings marching off a cliff. You almost never get good advice on what to do when you finally hear the “Pop!” sound.
Look, I’m not perfect. I’ll be the first to admit it. I make my fair share of mistakes. But one mistake I most definitely did not make is going over the “Waterfall” with consensus. Our clients know this. We’ve been warning investors about getting crushed in fixed income, commodities and emerging markets for months. Over and over again, until we were blue in the face. That’s the research call we made. It’s worked.
The waterfall is real—be careful out there. And don’t bother chasing the horse. It ain’t coming back.
(Editor's Note: This commentary comes from from Hedgeye CEO Keith McCullough's morning conference call. If you would like to learn more, please click here.)
