Gold Short Positions Decline As Gold Prices Rise And 10-Year Treasury Yields Head South Of The 3% Border

10-year Treasury yields are heading south of the 3% border.

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And non commercial gold short positions are declining as gold prices rise and the 10-year Treasury yields head down Mexico way (that is, head south of the 3% border).

Here is a picture of Fed Chair Jerome Powell and former Fed Chair Janet Yellen dicussing interest rates.

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Monsters In The Gelatin! Fed’s QE Unwind Reaches $364 Billion As Fed Funds Rate Continues To Climb (Volatility Express!)

Since the beginning of the QE unwind — or “balance sheet normalization,” as the Fed calls it — in October 2017, the Fed has now shed $364 billion.

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Of course, The Fed still have a long way to go to unwind its $4 trillion balance sheet. But The Fed is, at the same time, raising its target rate (although through confusing messaging).

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The S&P 500 index and the NAREIT All Equity (Real Estate Investment Trust) indices are soaring along nicely with The Fed’s balance sheet expansion (aka, low interest rates), but are experiencing rather dramatic volatiity in the face of a shrinking balance sheet and rising Fed target rate.

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And yes, volatility is increasing with Fed unwind and target rate increases.

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SMART Money Flow Index? The decline coincides with The Fed’s unwinding on its Treasury positions.

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Bubble you ask? Instead of “bubble” or “collapse,” the Fed uses “valuation pressures” and “broad adjustment in prices.”

To quote the late, great Isaac Hayes from Reindeer Games, “There are monsters in the gelatin!!”

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Fed Changes Course … Again To “Wait And See” Strategy As Dow Continues To Tank (UMich Buying Conditions For Housing Lowest Since 2008)

The Dow is falling again. This time on the less-than-awesome jobs report. 155k jobs added versus the expected 198k jobs added.

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Resulting in a decline to the Dow.

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Yesterday, the Dow sell-off eased after The Wall Street Journal reported that the Federal Reserve is considering breaking with its current approach of steady interest rate hikes, favoring a wait-and-see approach. That was relief to investors worried that the Fed might raise interest rates too fast, which could choke off economic growth.

And the the University of Michigan Buying Conditions for Houses fell to it lowest level since December 2008. Although the might be Michigan getting destroyed by Ohio State 62-39.

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In other words, The Fed is signalling “Hard to starboard!!!”

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Crypto Market Crash Is Causing Startups to Shutter Operations (As Paris Burns)

As Paris continues to burn after French Prime Minister Macrony tried to raise fuel taxes in an attempt to curb greenhouse gas emissions,

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the cryptocurrency market continues to see its bubble continue to burst.

(Bloomberg) — The plunge in the cryptocurrency market is weighing on the software-development community that spawned over 1,000 digital coins amid dreams of independence from traditional financial systems and instant wealth.

ETCDEV, the startup that led development on Ethereum Classic, which is among the top 20 coins with a market capitalization of about $400 million, announced this week that it’s shuttering operations due to a funding crunch. ConsenSys, one of the largest crypto-related software startups based in New York, said it’s planning a reorganization.

Many of the companies are suffering because they kept a portion of their funds in digital assets, whether in tokens they sold through initial coin offerings or in Bitcoin and Ether, which served as the preferred means of exchange in the crypto world. As prices collapsed this year by more than 90 percent in some cases, and their so-called digital wallets thinned out, many developers found they couldn’t raise additional funding.

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So, are Paris and cryptocurrencies burning? Yes!

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Sea of Red: Global Sell-off Continues As Dow Sheds 600 Points (Bond Yields Down, Commodities Down, Gold UP)

As of 11am EST, global equity markets are a sea of red.

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The Dow is down 600 points (2.4%) while the EU is down around 3%.

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After the big sell-off on Tuesday, we often see a rally the next day. But not today. It is a continuation of the trade tensions between the US, China and other trading partners.

And nervous investors are pulling out of equites and jumping into the safe zone (sovereign debt) pushing prices up and yields down.

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Even commodities are taking a beating as well … except gold.

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Calling The Fed, ECB, BOJ, PBOC!

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NY Fed’s Williams Says Strong Economy Warrants Further Rate Hikes (As Dow Crashes 800 Points And 10Y-2Y Slope Flattens To 10 BPS)

The Dow crashed 800 points today, most after noon.

Which is it? The fear that the Trump-Xie tariff truce is a big nothing burger? Or that NY Fed President came out after noon saying that inflation and jobs look good and isn’t worried that markets have dialed back ’19 hikes? Or both?

My bet is on Williams’ announcement of economic optimism and the likelihood of further rate hikes.

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And the Treasury 10Y-2Y curve flattened further to 10 BPS.

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And the 90-day Treasury bill yield keeps on smokin!

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Is Jerry Gergich running The Federal Reserve? 

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Ted Day! Ted Rises, 10Y-2Y Slope Flattens As US-China Trade Optimism Wanes (Curve Inversion Accelerates)

Ted Day! The Ted spread (3m Treasury yield- 3m LIBOR) is rising … again.

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Why?

The optimism that drove gains for riskier assets appears to be quickly dissipating as investors scramble to figure out exactly what, if anything, was agreed between the U.S. and China on trade at the weekend. Treasury Secretary Steven Mnuchin and President Donald Trump’s top economic adviser, Larry Kudlow, dialed back expectations and added qualifiers when asked about the outcome of talks between Trump and Chinese President Xi Jinping. China has said nothing about the commitment to remove car tariffs flagged by the U.S., nor did its statement mention the 90-day timeline for talks the Americans have specified.

In the Treasury market, all eyes remain on the yield curve after three-year yields climbed above those of their five-year peers on Monday, potentially foreshadowing the end of the Federal Reserve’s tightening campaign. The more closely watched part of the curve — the gap between two-year and 10-year yields — remains upwardly sloped.

Yes, but flattening like a pancake.

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Or getting dunked in cold water like Ted.

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OUSD: 10Y-2Y Curve Flattens To 16.7 Basis Points, 5Y-3Y Segment Inverts, Swaps Curve Inverted

Over under sideways down. The Fed’s “guidance” is drawing some frowns.

The recent confusing messaging by Jerome Powell about the neutral rate and future increases is causing confusion among trades and portfolio managers.

Throw in Brexit, the new Leftist President of Mexico and French riots. and The Fed is over under sideways down.

Take the 10Y-2Y Treasury curve slope. It has flattened to 16.7 basis points.

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The 5Y-3Y segment has inverted (upside down).

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In fact, it is the first time the 5Y-3Y spread has been inverted (below zero) since 2007.

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You can see inversion in both the US Treasury curve AND the US Dollar Swaps curve.

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The LIBOR/OIS spread is widening … again.

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But Wall Street is head over heels with The Fed.

Oops! LIBOR Spikes Again (LIBOR Leads The Fed Target Rate Increases)

The London Interbank Offered Rate (LIBOR) has been rising since The Federal Reserve began raising their target rate back in late 2015 and has accelerated as The Fed began rapidly raising its target rate after Donald Trump’s election as President.

LIBOR 1 month is following a “jump process” where is surges or jumps periodically ahead of The Fed’s rate hike announcement. But the NY Fed’s SOFR index tracks the Fed’s target rate

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As closer look since SOFR was introduced.

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So, the New York Fed’s SOFR index takes out the front-running of The Fed’s rate increases.

Oops! LIBOR spikes again … ahead of The Fed’s rate hike.

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The Fed’s not that innocent.

October Country: Core Inflation Cools To 1.78% YoY As Pending Home Sales Decline 4.6% YoY (10 Of Last 11 Months)

It is definitely October Country!

First, Core Personal Consumption Expenditures (PCE) Prices declined to 1.78% YoY pulling away the Fed’s desired 2% core inflation rate.

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And on the housing front, US Pending Home Sales fell 4.6% YoY in October, making it the 10th decline in 11 months.

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Yes, it is truly the October Country, a dark feast of wonder and horror. Without the wonder.

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