Ever since the Treasury bubble popped at the beginning of the year we have seen the record low rates on the 10-Year go from 2.03% all the way to a high of 3.75 on Thursday.  All of this in spite of the Fed trying their hand at quantitative easing in an attempt to keep rates low.

Looking at the chart below it is obvious that the “bond vigilantes” don’t think that it is worth loaning money to the government for 10 years for only 2 or even 3% right now.

10-Year T-Note Yield

Turning out attention to the G-10 we can see that bond vigilantes are not fans of any governments debt as rates have been rising across the board.

G-10 Bond Rates

Obviously no one wants to be holding any governments debt at these levels.  Maybe this time the 30 year long bond bull market really is over as we enter a new period of at least strong and possibly high/hyper inflation.

30-Year Bond Bull

Obviously only time will tell but it appears as though the bubble has finally been popped.  As you can see in the chart above a break above 5% in the long bond yield would break the 23 year long down trend line.   The implications are anything but bullish for the global economy.

Happy Trading,

Dave@TheMacroTrader.com

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For the first few months of the year West Texas Crude Oil was in an extreme contango situation.  In fact it got as high as 20% just four months out.  Looking at the 4-month contango/backwardization  in West Texas Crude Oil we can see that in just the past seven weeks it has dropped from over 15% to just 3.2%.

West Texas Crude 4-Month Contango/Backwardization

Most of the narrowing has happened in the near month futures, since over the past seven weeks the near month has rallied  27% and the 4th month only 14%.

Obviously the big question should be is demand really picking up? If so Oil should rise fairly quickly as we continue to see declining production as well as a decline in the ability to produce via the drop in rig counts over the last eight months.

Or is this a short term rise based on the notion that the economy is improving and this is just an extension of the risk trade?  If so then oil is to be shorted as are many other commodities as the reflation trade is put on hold.

We try not to fight the market and right now it is obviously in bull mode as it has moved up 75% from its lows.  That being said we tend to listen to the signals from economic indicators like capacity utilization, unemployment, and Fed minutes that show anything but an economic recovery.

West Texas Crude Oil

For now the trend is up and we are modestly bullish (that means we are flat) bulls.   However over the next few months we would not be surprised at all to be changing our view to the bear side and going short as the lack of demand likely overtakes these sorry excuses for green shoots and the economy, and therefore demand, roll over.

Happy Trading,

Dave@TheMacroTrader.com

Site Updates- Yesterday we installed Disqus to better  interact with our blog readers.  We welcome your views on energy, the economy, and any other financial topic.

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One of our current positions is EWY the South Korean ETF. We went long a few weeks ago in our model portfolio based on the trend, valuation, and economic characteristics of South Korean stocks.

EWY-South Korea ETF

Another factor that got us into EWY was the increasing number of Asian countries that have been coming up in our global stock model.  Our global stock model looks at technical, economic, fundamental, and sentiment indicators to help find foreign stock indexes that meet our risk to reward criteria.

Apparently we are not the only ones to have found an opportunity in South Korea as the Oracle himself WarrenB apparently is getting long some South Korean stocks as well.

In order to catch our trades in foreign stocks as well as other asset classes like US stocks, bonds, currencies, and  commodities then sign up for a quarterly or annual subscription to The Macro Trader weekly newsletter with frequent intra-week updates.

Happy Trading,

Dave@TheMacroTrader.com

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We were long precious metals coming into 2009 as gold, silver, and even platinum were climbing higher.  Eventually we got stopped out as the group consolidated for the next three months.  The last two weeks gold and silver have been able to breakout of the consolidation and is once again in an uptrend.  We went long in out model portfolio last week and are currently looking to add to our position if the trend continues.

GLD Gold ETF

SLV Silver ETF

In order to catch our trades in precious metals as well as other asset classes like stocks, bonds, currencies, and other commodities then sign up for a quarterly or annual subscription to The Macro Trader weekly newsletter with frequent intra-week updates.

Happy Trading,

Dave@TheMacroTrader.com

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In our newsletter this week we went long some UNG-Natural Gas and it is working out well.  The long term supply and demand characteristics were very favorable around the recent lows and we had a good technical picture as well.  As you can see in the chart below UNG has exploded to the upside on extremely high volume.  To put where natural gas is in perspective we also included a longer term chart showing the past 14 months.

UNG-Natural Gas ETF

UNG-Natural Gas Long Term Chart

Happy Trading,

Dave@TheMacroTrader.com

P.S. If you don’t want to miss out on more trades then subscribe to our weekly newsletter where we provide research on Domestic Equities, Foreign Equities, Fixed Income, Commodities, and  Currencies along with a model portfolio.  If you are interested in going beyond US stocks to generate returns in any market, we at The Macro Trader can help.

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We track hundreds of different economic, fundamental, technical, sentiment, and cycle indicators.  Some are stand alone and only help us discern particular situations while others are full blown timing models that we use to get in and out of the market.  Some are very complex with ten and even twenty inputs ranging from jobless claims, to put call ratios, to nickel, to the advance decline line.  Essentially anything that we test that helps to give us an edge we use to some degree or other.  As global macro traders we of course have several models for every market that we trade, as well as models that only point us to markets showing abnormal movement.

As of a few days ago we had one of our longer term SP500 timing models trigger a buy signal.  This timing model is very simple and only uses the NYSE Advance Decline line and the SP500 closing price.  This models esge is not huge but it is solid and historically you are risking about 1:1 meaning that the historical return is almost the same as the worst historical drawdown.

In our macrotrader.com/subscribe/”title=”Macro Trader Newsletter” >newsletter and in our own trading we rarely use a model as an automatic buy or sell signal but we do use them to tell us which dorection to trade.  Right now this extremely simple model is showing that the advance delcine line has finally been able to have a sustained run and break above its long term trend, in this case the 150-day moving average.  Again we don’t, and don’t recommend, trading directly off of these signals as almost every model we track can be improved upon by selecting better entry and exit points but they do helo us tremendously in our trading.

SP500-NYSE Advance Decline Line

As you can guess we are becoming increasingly bullish after being bearish for the better part of two years.  Who knows if this rally will continue as there are a ton, and maybe a trillion tons, of harsh economic realities and hardships, but for now the trend is up and we are starting to lean to the long side.

Happy Trading,

Dave@TheMacroTrader.com

P.S. If you are getting value out of our posts, you can do us a favor by linking to us with your site or blog and mentioning The Macro Trader to any of your friends that trade.

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Tuesday the Fed came out and said that they will not be expanding their quantitative easing operations.  They claim that things are looking good enough that they do not need to do more.  Of course we also had a really bad GDP number and long term rates have been climbing ever since the original announcement.  If the Fed is right and things are improving then we can expect to see some fairly strong inflation coming up in the next few months out to about two years.  Essentially at some point relatively soon we are going to be in a very inflationary environment.  Here are two sectors that we think will benefit from inflation, and will likely do well even if inflation is relatively flat.

MOO-Agribusiness ETF

OIH-Oil Service HOLDR

Happy Trading,

Dave@TheMacroTrader.com

P.S. If you are getting value out of our posts, you can do us a favor by linking to us with your site or blog and mentioning The Macro Trader to any of your friends that trade.

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One of the best indicators to see how the global economy is doing is to just look at the CRB index.  While we don’t expect it to be hitting new highs anytime soon, it would be nice to see it moving up at least a little.  Instead as you can see in the chart below it has only managed to find some type of bottom.  If it’s “The Bottom” or just “A Bottom” is besides the point for now.  It is enough to see that it is not trending up.

CRB Index

Another good indicator to look at to gauge the strength of the global economy is that of the Baltic Dry Index.  Over the last couple of weeks we have seen many blogs and other market commentators mention that the index has been climbing.  Of course what they fail to mention is that if you look at the longer term chart of the index, it is still down significantly and it makes the recent rally look insignificant.

Baltic Dry Index-Short Term

Baltic Dry Index-Long Term

Needless to say we think that many commentators are getting ahead of themselves in saying that the economy has bottomed.  In fact the vast majority of the economic indicators that we follow are still pointing straight down, without any “green shoots” characteristics.  Until we can get some  historically reliable indicators pointing to a bottom and/or a rebound we will be cautious as capital preservation is our first priority.

Happy Trading,

Dave@TheMacroTrader.com

P.S. If you are getting value out of our posts, you can do us a favor by linking to us with your site or blog and mentioning The Macro Trader to any of your friends that trade.

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Today’s post is short but as they say a picture is worth a thousand words, and sometimes even more.  In our subscriber area we have a detailed analysis of the consumer and consumer related stocks.  For everyone else, here is the chart of the consumer discretionary ETF and you are welcome to draw your own conclusions.

XLY-Consumer Discretionary ETF

Happy Trading,

Dave@TheMacroTrader.com

P.S. If you are getting value out of our posts, you can do us a favor by linking to us with your site or blog and mentioning The Macro Trader to any of your friends that trade.

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Following up yesterdays post regarding what we see happening in the crude oil market we were happy to see the inventory numbers come out this morning and once again confirm what we have been seeing, namely that until Contango narrow significantly or goes away entirely there will be a large incentive for large energy traders to buy oil in the cash market and sell a forward contract to lock in a gain.

With Contango at 10% from the current month out to August there is a huge incentive for large speculators like global macro and energy funds as well as oil companies that have extra storage capacity to put this trade on and just sit on the oil until it has to be delivered.

Here is a chart of oil inventory data and as you can see we are at highs not seen since 1990.

Weekly US Crude Inventory

Happy Trading,

Dave@TheMacroTrader.com

P.S. If you are getting value out of our posts, you can do us a favor by linking to us with your site or blog and mentioning The Macro Trader to any of your friends that trade.

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