T-Dreams

Seems like all I did last night was dream about Treasury rates. This morning I found several items that made me think it wasn't a coincidence.

First up from Zero Hedge:

The Most Important Number In The Entire US Economy

Bottom line: over $400 trillion in interest rate derivatives are tied to the 10-year yield, which is currently rising a bit too rapidly.

Goldman Sachs, my favorite institution that should have gone under in 2008 were it not for the bailout of AIG, has a total derivatives exposure 362 times greater than their total assets.

If yields on the 10-year continue their break out, Lloyd and Jamie will show you just what a house of cards our fractionated system of banking truly is.

Think I'm overstating things? For that I've got Peter Brandt to back me up, a trader whom I respect, who just so happened to pen this post the other day -- oh yeah, it's about Treasury rates:

The charts predict a multi-year bear market in the price of Treasury Bonds and Notes

Bottom line: a 31-year bull market in T-bond prices may be ending and rates could rise significantly. Peter's post is a must read. One thing that jumped out at me that he did not comment on is the marked decline in open interest as bonds and notes made their most recent highs. It is especially glaring on the 30-year bond chart. That's the market saying: "That's all folks."

It's not all. It's likely the beginning of deleveraging which is the unwinding of 30 years of growth juiced by credit expansion, whereby the growth was basically a mirage.

So of course I loved seeing this article today:

The return of ‘Dow 36,000’

Bottom line: it's back. Right at the perfect time.

Amazingly, the article quotes John Hussman, who is thinking along the same lines as I am.

“[T]he deepest market losses in history have always emerged from an identical set of conditions (also evident at the pre-crash peaks of 1929, 1972, and 1987),” he writes, “namely, an extreme syndrome of overvalued, overbought, overbullish conditions, generally in the context of rising long-term interest rates.” And that, he adds, is what we have now.

If the market is where I think it is from the June 24th low, then after a minor dip, I want to see it absolutely rip into the August option expiration. It will likely be a scary trade and will require a lot of courage to step in front if it (especially publicly), but that's why trading is not easy.