The collision of global markets and social mood

Friday, May 10, 2013

Bass, Beer, And Gundlach

From Zero Hedge this morning:

It appears things are getting a little out of control around the world. Between the collapse in JGB implied volatilities in recent days, today's melt-down in JPY (+255 pips from pre-open US levels), the last few days melt-up in the Nikkei (+6.8% in 3 days), and now the quadrillion Yen Japanese government bond market is halted limit down as yields smash higher by 11bps to 70bps in 10Y - the highest yield since mid-February. For context, this is the worst day in JGBs in five years (and 5Y yields are back near 13 month highs).

Kyle Bass probably just pulled on his favorite pair of boots, cracked a beer, grabbed his shotgun, and headed outside for some fun in the sun, Texas style.

Today is a big day. The yen has reached 101.443, a multi-year swing point. The dollar looks set to crest above 83.19 which could wreak havoc with the commodities markets. And the action in the JGBs is ominous in light of the recent behavior of the US 10-year and 30-year which have cracked hard.

There may be a chorus line of Wall Streeters touting The Great Rotation and how higher rates mean the economy is expanding, however, they conveniently sidestep what rising rates signaled in Europe. It's simple. If long-term rates shoot higher in the US and Japan, it's over.

Dartmouth grad and $60 billion bond manager, Jeff Gundlach, says it better starting at around 6:00 (the video caused a slight formatting issue):

Short-term rates such as T-bills could remain low due to safety reasons (investors caring more about return of capital rather than return on capital). Gundlach makes a much-needed point starting at 6:00 that no one else talks about on the Street and must be said: rising rates will cause an implosion in rate-sensitive asset classes. As for the S&P, there was a beautiful impulse wave down yesterday. Who knows if it is a kickoff to something larger, but I see the 1615 level as a buy. It's a 38% Fib retracement level, and it would be a rough 1:1 target. Below 1615 could bring 1600-1597. To the upside, I'm starting to zero in on the 1665 area for reasons mentioned previously and will mention again soon. Getting below 1580 would immediately call this into question as things now stand.

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