Bulls and ?

I was chatting with Conor Sen (@conorsen ) from Atlanta today about what I consider the Secular Bear market in "Bonds." He was wondering how I aligned my soft employment view with secular bearishness, a very valid question. The simple answer is, labor tightness and wage pressure are a later cycle phenomenon. The "Tight Labor" birthers aren't wrong, they're early - and any futures trader worth his salt knows; the difference between early and wrong is the mood of your margin clerk. But...I digress...

The conversation turned to my start in the money market in 1984. As the T-Bill " Pit kid" for the Dean Witter Govie desk, I earned an MBA in foul language with a minor in phones being slammed in my ear. Martha Stigum's The Money Market was (and remains) our "Bible." By 1984 Bill rates had gone from 15.5% in 1980 to 8% in '83 and back to 10%. (The fledgling Eurodollar Pit, and its 7 locals, was routinely 150bps over- Yes, Virginia the TED was wider) The rout from 8 to 10 was embraced by players far more than the 7 point decline from the peak. Well into 1985, when senior dealers were feeling the heat, an angry "What'ya think kid?" would come over the hoot-n-holler. Well distanced from the bloody P/L, I'd often respond, "You have to own these things." Click. A mentor mentioned to me once that, "Just so ya know, we don't really buy...we sell."

Such was the attenuated transition from secular bear to secular bull. Unlike cyclical turns, which can be rapid, secular changes develop over years. This generation, and the 33 year Bull they rode in on, have NEVER seen a Secular Shift. 5 years into the Great Bull run, a significant amount of Wall St's best still only shorted. As the Fed has dipped its toe into the possibility of maybe, someday, hopefully, pulling back some; most participants adjust only what they BUY.

As Conor pointed out, Bear Markets don't really even exist in this generation's experience. There is Bull and Crisis. Cyclical bear markets to be sure but the secular Bull trend in bonds buttressed their buy ticket orientations. News outlets love the Bull or Crisis dichotomy. They would prefer you don't recall the Dow went NOWHERE from 1971 to 1981, and more importantly, no one really cared. We are a loooong way from even the mildly exciting waves of this change. The 10 year low will be 2 years old this Sept.(remember "financial repression?" good times) Sometimes, the hardest part of history to understand is the part you're living right now. As Livermore advised, "All I needed to know was it a Bull or a Bear", the rest took care of itself.


One thought on “Bulls and ?

  1. Rafael

    What are 3 main arguments for the Secular bear market to have started, without a new low in long-end yields, and what would make you re-think thesis?


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