Thursday, April 23, 2009

The T-Bill

or the 90 day maturity U.S. Federal bond dove lower today and is telegraphing the next wave of deflationary pressures. While the spring rally meanders around on fumes with general stocks in the stratosphere relative to their actual current value, "big money" is moving the bond markets and it is buying (not selling) the Treasury bill. A distribution top is forming in general stocks and the money raised from the recent rally is being used to buy safety. The T-Bill is still a primary flight to quality vehicle for institutional money.

I don't trade bonds, but I watch them for clues like anything else relevant I can find that has a chart. Gold bugs are always looking around the corner for hyperinflation but bond yields scream that deflationary forces are much more powerful (which as I have stated many times is not necessarily bearish for Gold). When risk appetites increase, bond yields rise not drop. The big money is selling their stocks to the public and moving to bonds to avoid the pain they already know is coming in the stock market.

To the charts, eh? The first is a 6 month daily chart and I used a log scale because the moves have been so dramatic that a linear chart fails to demonstrate the incredible nature of these moves in the boring old bond market (linear charts are generally better for shorter time frames in most circumstances):

On the monthly log-scale chart over the past 4 years shown below, the bond market drama is overstated, but it's fun for me dammit and I want everyone reading this to get my point:

We're going back to a 0% yield on T-Bills before 2009 is over and the bond markets are screaming at stock investors to get out or get short. The bond market is bigger and often smarter than the stock market and is providing a forecast from the "insiders" and that forecast is deflation and a stock market wipe out. This is where the big boys are actually putting their money (rather than what they are saying on CNBC and Bloomberg), which means institutional money is extremely risk averse right now. This general equity bear market ain't even close to being over.

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