Everyone always says, “Don’t try and call a top.” I guess any other wild call is fair game, just not tops. We are not inclined to follow the advice. We believe the Treasury complex is in the throws of a cyclical correction and secular top.
Tops are, by definition, protracted and complex formations. High volatility and major frustration (capitulation?) by the bear camp are observed. Ownership is advocated based strictly on recently experienced price action. A move above the September futures highs would give us some good “non-price” metrics to monitor. Unique to this cycle has been the proliferation of ETFs in the space. The masses prefer the trading vehicle to the actual notes. Unlike securities that “yield” a key structural buffer to holding on once the market has turned is removed. Put simply, we believe that the majority of shadow owners are operating under the belief that they will both know when to and quickly abandon their commitments. Inertia, often hoped for by policy makers as stability, would be enough to move the ETF herd to greener fields.
We are convinced that history will record this period as the polar opposite of the 1981 – 1984 time arc. A few paragraphs, or a page, in a text book but an eternity to live through. The 3rd test (the first being Dec 2008 to June 2009 and 2nd , Nov 2010 -Mar 2011) could begin at any moment between now and mid-March.