The Yield Curve TWISTs Again

Sept. 5, 2010 - PRLog -- As I explained in my article "The Yield Curve Twist Omen" long-term yields have been undervalued for an extended period of time. Although that undervaluation can last an extended period of time once the arbitrage has started it can reach its fair value very quickly. This article is meant to bring further evidences of the fact that this Twist is in the making, which I have called since August 24^th "The Nemesis of Long-Term Yields".

This is a summary of the article that appeared on the front page of OpEdNews.com
http://www.opednews.com/articles/The-Yield-Curve-Twists-Aga-by-Shalom-Hamou-100903-975.html

I explained in these articles that a twist of the yield curve from a grossly undervalued configuration to a fair valuation was in the way:

The orange yield curve is the recent lowest yield curve (on August, 25^th).The green yield curve is the expected, almost normal, yield curve (on Sept 17^th).


Hammer:

We had a splendid Hammer on August 25^th on 10 Years US Treasury Notes:

http://futuresource.quote.com/charts/charts.jsp?s=QUS%20&...=


Runaway Gap:

On Friday we made a fantastic Runaway Gap from Thursday between 2.639% and 2.650%.

static.seekingalpha.com/uploads/2010/9/4/429369-128363946132504-Shalom-Hamou_origin.png


Other Supporting Evidences:

I remind you that this Twist of the yield curve does not come from any macro economic reason but only as a dynamic return of the yield curve from a formidably undervalued configuration to its fairly valued configuration.

Prove is that in getting that reversal we didn't get extraordinarily good macro economic figures: they were just as bad as usual. The reaction to Jackson Hole meeting which in other times would have crushed down long-term yields had just the opposite effect.

Economic Expectations:

The Federal Reserve System will necessarily misinterpret (or want us to misinterpret) that steepening of the yield curve:

The Yield Curve as a Leading Indicator.

Forecasting Recessions: the Puzzle of the Enduring Power of the Yield Curve.


Market Movements:

Fixed Rates:

Expect the upward trend of the yields long-term treasuries to continue and accelerate. For the Yields on 10 Years US Treasury Notes the objective is 3.500% [ 121 on December Futures on 10 Years US treasury Notes] on September 17th which means that we have already made 30 BIPs and we have still 75 to make in 8-9 days that makes an average increase of 9 BIPs.

As chasing rates will be less a necessity the spreads between corporate and government bonds (in perticular junk) will widen. Junk bonds, of course, will collapse with the crash.

TED Spread:

As chasing for rates will be less necessary the TED spread will continue to widen as it has done since August 25th. It will explode on the crash.

Stock Market:

As market participants will misinterpret the steepening of the yield curve stock indices will continue to go up till Sept. 7th.

Minerals:

Mineral prices will continue to crawl up till the yield curve gets normal, they will then sharply go down to their marginal cost of extraction (Commodity Conundrum Solved: The Hidden Parameter in Interest Rates).

Facebook:

Events:

The Market Crash: Be Prepared.
http://www.facebook.com/event.php?eid=132651053416423

Post Crash Economy - Economic Non Compliance Week.

Page:

The Post Crash Economy

Groups:

Prepare for Market Crash Before September 9^th.

The Religious Interpretation of Employment, Interest, and Money.

Libertarians Against Credit.

Muslims Against Credit With Interest.

http://www.youtube.com/watch?v=eJylrGomAIo



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"In one of the greatest investment markets in the world, namely, New York, the influence of speculation (in the above sense) is enormous. Even outside the field of finance, Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market."

What will you do after the crash? Anyone needs an economy, don't you? On Sept. 22nd, I will, on "Market Crash: be Prepared" start to display a series of videos in which will present my alternative to the Deep Depression as a way to limit its chaotic social, political, military consequences.

“History teaches us that men and nations behave wisely once they have exhausted all other alternatives”.