Bonds: A Gross Signal Upcoming

Reference this post from December 2016…

Bonds: 90% of You Are Herding

…and this sentiment graphic (source: Sentimentrader w/ my markups) from that post and the bullish implication it carried:

30 year bond public optimism

The over bearish public sentiment profile for bonds back in December 2016 was as usual, instigated by our friends in the media. Now take a look at how bonds did from that point until we began our bearish bonds (rising L/T interest rates AKA Amigo #2) theme a few months ago. The long bond went up for 8 months after we noted people were too bearish and a bull move was likely.

usb

So now we have been bearish (i.e. in favor of rising yields) and the sentiment profile has not yet become over bearish, and so I am not going to get too alarmed (as a contrarian) that this guy is again making bearish headlines.

bill gross

It was after all a big time signal to go the opposite (bullish) way in Q1 2011 when he made a similar pronouncement, forever immortalizing himself for ridicule as part of  my Continuum ™ chart (I just realized that his noggin would go well in there with all the other mugs) on the long bond’s yield. Q1 2011 was an epic buy signal for bonds and sell signal for commodities and the ‘inflation trade’.

tyx

Earlier today I did a post about flying pigs and interest rates, as Amigo #2 (L/T yields) has made a move amid some alarming headlines. Then Biiwii guest author Kevin Muir illustrated the contrarian aspect of all of this and compelled me to go back and check my thesis.

Yup, still on message. Indeed, we are looking for a rise in yields and the likes of a hysterical Bill Gross going on about inflation and a bond bear. But the key is that the max bang for the contrarian buck would come in at around the red limiter above. So Gross can be right for a while yet. Why, the media may even re-lionize him for his bold call.

See, the sentiment setup is still aligned for the bond to continue dropping, which means the yield above is still aligned to rise to the limiter, where all the action is going to be. Here is the public’s current over bullish perception. They chased the lame 2017 rally just as we knew they would. If you’re wondering about the wise guys, Commercial Hedgers are very net short the long bond.

30yr bond sentiment

So let’s realize that what seems likely in the coming weeks and months is that the long bond is going to drop further as the yield rises to the limiter. At that time Bill Gross will be crowned a “Bond King” (oh wait, he already earned that title from the media long ago) who saw it all coming.

But you and I are going to know better. We are going to know that this has all been part of a macro plan that is moving forward, not caring about media hysterics, anointed media stars or any other noise.

What is happening is that Amigo #2 is rising toward the limiter. This Amigo will join Amigos 1 & 3 (SPX/Gold ratio & the 10-2 yield curve) in signaling important macro changes when the riders either finish up their missions or abort them. I am glad I saw Kevin Muir’s article because it made me take a checkup on the yield backdrop in light of the greatest media-born contrary bond indicator possible.

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