Tag Archives: cycles

If S&P’s downgrade actually matters, why are bonds up?

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I keep reading about how stocks have fallen because of Congress or S&P’s downgrade of Treasuries. Both theories are nonsense. Stocks markets were overvalued (and still are), overbought and overbullish, so this decline was inevitable.

How do we know that S&P’s ratings are meaningless? Well, they almost always downgrade debt after it’s fallen, and in this case the markets are completely ignoring the rating. Here’s the 10-year note not giving a damn:

futures.tradingcharts.com

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Congress and its budgets do matter, but there is so little difference between the two parties that the debate is moot. Even the “hard-line” Republicans want to just maybe someday slow down the rate of spending growth. Sorry guys, a negative 2nd derivative doesn’t count as a budget cut.

Eventually yields will turn up, but as I have pointed out for years now, interest rate cycles are very long and don’t have to make fundamental sense, especially not at tops and bottoms. Even if this happens to be the very bottom, nobody is going to get rich quick by shortng Treasuries. Here’s a 180 year chart to put things in perspective:

safehaven.com

VIX cycles

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No strong conclusions here, just some food for thought:

c

Prophet.net

You can also see a possible 30-day pattern: 30 days down, then a ramp. Let’s put this in perspective. Here’s a 5-year weekly chart. All I can note here is a divergence on the RSI over the last few months:

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I’ve also noticed how Treasury bonds have resembled the VIX for some time (I put in those RSI buy/sell signals just for fun — not as effective here as in the 60-min chart of Dow futures, but not bad either):

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Just goes to show, when you think you’re trading US stocks, Chinese stocks, commodities, bonds and options, you’re really just trading global patterns of fear and greed. It doesn’t matter what market you choose these days. They’re all the same.