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 -Monday, August 22, 2010
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| Weekly Economic Summary |
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| Brian Heyliger, Professional Trader/Instructor |
 Pigs don’t have a very long life span. Especially when they’re fat.What do pigs have to do with your money, you ask? More than you think. The average life span of a standard pig is about 25 years, you see. And this particular porker's been fattening up on corn dogs and Twinkies for past 25-years. I’m talking about the U.S. Government 30-year bond market - the long bond. Bonds have been rising since the late 1980’s, sending interest rates plunging. In fact, this pig has become so bloated, he’s now living on borrowed time. Here's why ... At the start of 2010, everyone was betting on lower interest rates. It seemed like a no-brainer trade. The economy was in the doldrums, and every day the leader of the world’s monetary policy - that's Ben Bernanke - was playing limbo with interest rates. So bonds had to go higher. And they did. Long term treasuries have soared. This of course sent interest rates to record low levels. Here’s a quick look: http://stockcharts.com/c-sc/sc?s=TLT&p=D&yr=0&mn=8&dy=0&i=t16080450158&r=250 But there's a problem with that trade today: it’s very crowded. And anytime too many people jump to “one side of the boat,” it doesn’t take a rocket scientist to figure the boat will eventually flip. What bonds have in common with all other markets is this: 1) They've all been a fat bloated pig at one time or another, and 2) They've all rolled over and sank when the boat flipped, just like bloated pigs who can't swim After Friday’s action in debt markets around the world, the bond boat may just be flipping right now. Click here to return to the Weekly Newsletter & Commentary |
