Tuesday, June 29, 2010

Ten Year Yield Back Below 3%

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The U.S. Government ten-year bond yield ($TNX), that is. This is not an inflationist message, though it provides cover for "the world is ending, quick we need to give all our corporate friends some taxpayer money" scenario to recur. The biggest bubble of them all has a ways to go before it pops. Here's a 5.5 year weekly linear plot of the yield action:

People playing the "steepening" trade (i.e. betting on the spread between long-term government debt and short-term government debt increasing) are getting killed right now due to a quick rise higher in short-term yields while long-term yields are collapsing. I'm sure these folks aren't using any leverage though and I'm sure this won't contribute to margin calls that intensify selling in the equity space...

Gold continues to hold up well during the new deflationary pressures that have now resumed in full force. The trillions of dollars wasted trying to "stimulate" one thing or another are gone. There is and will be nothing good left to show for it except among those titans of the universe close enough to the keiretsu teat of federal government largesse. Those mere mortals who took the bait and bought houses in the bubble real estate areas are about to experience that drowning feeling of being underwater, regardless of whether or not a new housing tax credit is passed. Enough demand was brought forward that any new measures will likely be ineffective.

The Dow to Gold ratio looks like it is gathering a head of steam to head back to its March of 2009 lows. I suspect this will happen with Gold acting firm (although even $100/oz swings in both directions should not alarm or surprise long-term Gold bulls) and the stock market tanking. I am maintaining my "long physical Gold, short stocks" trade for now.

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