The bond markets sending “signals” …you better read them

Posted: May 7, 2015 in Uncategorized

I like the bond market as it is made up by professional…so in a sense it is much more precise than the stock market.

The currency market is even better as it cannot be meddled with even by Central Bankers, but it is not as precise.

Three weeks ago, when we advised our clients to get their profit in safe position the bond yields started rising…signalling an increase in risk of two types.

– the Greek issue is solvable – but more complicated than the market thinks. The chance of a Grexit due to a political miscalculation are 50/50. It would not start a global meltdown (probably), but definitely a serious hiccup

-investors are not accepting the Quantitative Easing mandated negative yields on Germany bonds (sorry, too complex to discuss in this simple blog)

On this already whimpering scenario you have two errors

Locally the RBA chairman practically suggested that this is the last move down for the RBA … the move had a contrarian effect and  currencies and yileds went up!

Also the Fed Chairman Yellen committed an error practically saying that when the FED will start tightening (increasing the rates) you could see a move much sharper than the market predicts (rates gets increased monthly each month (the market is still scared by Chairman Greenspan that in 2006 exited his post with 14 consecutive .25 monthly rate rise to 4.5% and Bernanke finished up the job at the 17th at 5.25% – if my memory serves me right).

And guess who has the biggest fallout….the ASX and in particularly the Australian banks.

Australian banks are the “yield play” of the world…so when other yields plays out “foreign money” run away*

*Surprise: the media tricked you again. In the last several months the media was spinning the news that our banks were safe as they were owned by SMSF trustee that they want to keep them forever – it was a lie. Foreigners (specially Japanese owns a lot of it – as it shows in these days.

And a future surprise….did you notice that there is a little talk of  Australian real estate bubble ready to explore.

Well is owned by Rupert Murdoch and its news empire. And there are consistent gossips (gossips not fact)  of Fairfax considering a Domain IPO…so let’s not talk bubble please!

PS Technically speaking this is still normal volatility…no major trendline has been broken (generically SP 2072 and 1970) – so no panicking- yet. Just two or three intense weeks,


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