Tuesday, June 22, 2010 - 7:20 PM
(The cry for inflation seems to be growing louder and louder...at the very same time that the cry for deflation rages on)
For the average investor, the Ultra US Treasury Bond futures contract is a relatively new way to get protection against deflation. But for at least one trader, it's another sign that a significant price drop is looming for the bond market.
"It's leading every single market move up when there's trouble and every single rejection when people think things are OK," he says.
The trend toward long-dated bonds is not surprising to those who think the market for Treasurys has been overheated and led by investors who are ignoring inflationary signals.
The trend is "another indication of how bubblicious this market has become," says Michael Pento, chief strategist at Delta Global Advisors in Parsippany, N.J. Pento points out that by 2015 the US will be spending 30 to 50 percent of all revenue on debt service payments, a factor that will drive up interest rates and push people away from bonds.
"If you have 50 percent of all revenue going to interest payments, what do you have left?" he says. "You have exploding deficits, you have skyrocketing interest rates, people selling your currency-you have economic catastrophe."
"The amount of debt we're going to be seeing over the next decade is worrisome, the Fed's balance sheet is worrisome. Those are off into the future now," says Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco. "At some point something's gotta give and rates are going to turn sky high. It's just a matter of when."
"With long-term US bonds you're really playing with fire," says Mike Larson, analyst at Weiss Research. "We're still borrowing and overspending and we don't really have a concrete plan to get that down."
Nevertheless, Ferry says he's seen enough to know that trouble is ahead.
"Everyone wanted a piece of the inflationary theme when the Fed went to quantitative easing. They got killed. So now they're seeing the other side," he says. "That's indicative in our mind of a last-ditch, crazy fifth wave. This is what happens at the end of cycles. We're in that final stage."
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Feb 22, 2010
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