Option Probabilities Spell Possible Trouble for Treasury’s

Our trading partner J.W. Jones is coming at us today with a great post on where he sees the Treasury ETF TLT headed. Great guidance for where the market at large just might be headed.....

The incredible rally in equities in 2013 has begun to stir concern among many that the stock market is now in a bubble. We have entered the euphoric stage of this bull market and equity prices cannot and will not go lower according to some talking heads in the financial punditry.

While chatter is starting to heat up that equities are in a bubble, the real bubble seems to be ignored for the most part. The larger, more concerning bubble is in the Treasury marketplace where the Federal Reserve continues to print money to purchase treasury bonds to help keep interest rates artificially low.

Instead of debating the bubbles in Treasury’s versus equities, or trying to predict when the bubble in either asset class may pop, I want to focus on the near term for price action expectations in longer dated Treasury bonds.

Here is a weekly chart of the Treasury ETF TLT which is supposed to reflect the price action and yield generation of a portfolio of 20+ year duration Treasury bonds issued by the U.S. federal government.....Read "Option Probabilities Spell Possible Trouble for Treasury’s" 



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Where is the Larger Bubble: the S&P 500 Index or U.S. Treasuries?

Today we have a plethora of companies reporting earnings and are moving through the 1st Quarter earnings season at a rapid pace. Thus far, earnings have been far from exciting and have made the previous 2013 forward earnings estimates laughable.

The only way we get to the proposed valuations is through multiple expansion which is simply going to require the Federal Reserve to continue to pump $85 billion into Treasury’s and MBS securities each month. I am confident they will comply.

There are a few analysts out there who are discussing the potential bubble forming in equities and other risk assets as Bernanke’s plan is working to the extent that asset prices are rising. However, even fewer analysts are pointing out that both retail and institutional money is constantly chasing yield at this point.

Simply take a look at the 2013 price action in high yield dividend paying stocks, high yield bonds, preferred stocks, and master limited partnerships. It is safe to say that a bubble has formed not just in equities, but in various fixed investments as well.

Consider the following chart of the S&P 500 Index (SPX) shown as the dotted trendline and Johnson & Johnson (JNJ) shown as the solid black line.....Read the entire article "Where is the Larger Bubble: the S&P 500 Index or U.S. Treasuries"


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