Muppet Assassins and Bonds

Goldman Sachs recommended to clients on Monday, April 28 to sell Treasury bonds, when the 30 year yield was 3.47%.  After the dust settled last week, the 30 year yield finished at 3.36%.

You will hear investment banks make a lot of market calls, most just a reiteration of the overriding sentiment of the time.  For those that are being honest and not trying to manipulate the public with their calls (-----> Goldman), they are just guessing and have no edge, or more likely, below average predictors.  Oddly enough, those that try to manipulate the public by doing the opposite of their calls, like a Goldman Sachs, are usually pretty accurate.  Accurately recommending wrong, because they are using their calls to provide better liquidity to enter the opposite side of the trade.  Goldman Sachs has a knack for waiting for a bull move to get overextended and get to near exhaustion, and then put out a buy recommendation.  Ditto on the opposite side, when they want to enter longs, putting out a sell recommendation, like they did with bonds early last week.

Many who have experience in the trading world know this, but surprisingly, it still gets a lot of play and influences a lot of market players to not do what Goldman wants to do, which is the opposite of their recommendation!  This allows Goldman to get better prices for their orders.  It is something to keep in mind when you hear Goldman in the news out with a buy or sell recommendation.  They are probably on the other side razing down muppets.  

On another note, the action in bonds last week was about as bullish as you can get.  It flew higher on a below average GDP number, something that usually doesn't move bonds that much, and even squeezed higher on a consensus beating ISM index number.  Most impressively, the reflexive dip in bonds on the strong nonfarm payrolls didn't last, and we made a monster reversal into positive territory on Friday.  So while the S&P was up about 1% on the week, bonds were up even more.  

The flows into bonds are coming back.  With German 10 yr bunds yielding just 1.45%, and Spanish and Italian bonds hovering around 3%, global bond fund managers are buying relatively cheap 10 yr Treasuries at 2.60%.  Once again, slow growth, low inflation, and the enormous amounts of global liquidity mean low interest rates.  We are not going back to the 5% Fed funds era again.  Not even 2%, as Bill Gross suggested.  We are stuck at zero.  Those looking for the Fed to raise rates are living in another era.  

I know the investment crowd is getting sick of zero percent interest rates, and Fed bond buying.  They better get used to it.  Demographics in the U.S. support the view that the Japanification of America is in full force, and will last a long time.

We've got a gap down without any reason, and no WW III.  I am getting more bearish on equities with each passing day.