The bond market is getting hammered along with stocks but gold and bitcoin are on a tear and have been acting mostly together for months. Let’s discuss what’s going on.
Long-Dated US Treasuries Hammered
TLT Weekly Technical Analysis
- TLT is down almost 50 percent since early 2020.
- Elliott Wave traced out five clean waves. This makes it an impulse wave not a correction. Wave three is usually the longest and strongest.
- Wave fives can extend. So there is no clear technical reason to expect a bounce at this point but any bounce would tend to be a corrective bounce.
TLT Fundamentals
- Deficits are soaring and there is no political will in Congress to change that.
- The US is supporting two wars despite a huge basket of problems at home.
- Budget infighting in Congress and Biden is requesting still more money.
- The push for EVs is highly inflationary with questions about where minerals for batteries will come from.
- The infrastructure is not remotely close to where it needs to be to support the EV revolution Biden wants.
- Sentiment is sour and it should be. Attitudes are very much in play. A search for yield is now easy to find. People can get 5 percent on short-term treasuries so the prevailing attitude is not to go out on the curve with more risk.
- No, it’s not China dumping. But China is buying less treasuries and agencies than before due to improved US trade deficits with China.
Gold and Bitcoin Daily Charts
Gold and Bitcoin have roughly been tracing similar patterns.
Gold finally seems to be reacting to the massive deficits and treasury issuance. The recent rise in yields also appears to be stagflationary, generally a very good time for gold.
Bitcoin may be rising due to the same fundamentals. But it also appears to be reacting to SEC approval for a Bitcoin ETF.
The Grayscale Bitcoin Trust Arbitrage Play
On September 3, I discussed the Grayscale Bitcoin Trust (GBTC), its pending conversion to an ETF, and the arbitrage opportunity that still remains, with Gary Brode at Deep Knowledge Investing (DKI).
GBTC was roughly 18.5 when I posted the play. It’s now 24.70, a gain of about 33 percent.
For details, please see MishTalk TV with Gary Brode on the Grayscale Bitcoin Trust
Gary’s Deep Knowledge Investing Blog is free with the exception of subscriber only articles. His free articles present ideas, but when to sell articles are subscriber only.
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Gold Massive Cup ands Handle
Returning to gold one more time, it is flirting with a major breakout having undergone a huge three-year consolidation.
If the next major move is higher, as I suspect, the move rates to be explosive.
I am on the road this week, but if time permits, I may be able to do a Twitter Space discussion with Gary Brode on some of the ideas in this post.
Relentless Treasury Selloff, It’s Not China
Meanwhile, there have been lots of charts and rumors circulation that the reason for Treasury weakness is China dumping US treasuries. Those stores are simply false.
For discussion, please see Bond Bulls are Getting Crushed in a Relentless Selloff, It’s Not China
Compromise is always more spending for this in return for more spending on that.
And both parties want to spend more on the military.
Debt to GDP Alarm Bells Ring, Neither Party Will Solve This
In case you missed it, please see Debt to GDP Alarm Bells Ring, Neither Party Will Solve This
“Neither party will fix the deficits. Neither party will do anything about mounting debt. No one will do anything about anything because the political system is totally broken.” Mish
That’s also the message of the Treasury market and gold. Bitcoin advocates would say Bitcoin as well.
Bitcoin is mere psychosis ,Doug… Gold is real stuff ! How dee b t way , long time we don t argue …
Stopped reading at “Elliot Wave”. LOL.
Hi Mish. Remember the time when radio shock jock Steve Dahl had his fans throw those gold foil covered coin shaped chocolate candies into the Illinois tollway baskets as a protest?
People can invest in anything they want, including treasuries, bitcoin and gold. So have at it if you wish.
However, I prefer to invest elsewhere. Currently, my investment focus is on energy. The link between energy consumption and economic growth is close to 100%. Same for energy and population growth, productivity growth and standards of living growth.
And 80% of energy consumption is from fossil fuels vs 20% from nuclear and renewables. The same percentage as it has been for the last 50 years.
Energy is fundamental to life, just like water, food and shelter. We cannot survive without these basic necessities. We can get by without treasuries, bitcoin and gold.
Again. Just my opinion. Invest where you think you will do well.
Whilst it’s true that energy is fundamental, not all energy technologies and companies are. Wave energy companies went bust recently…
Oceanlinx, Wello, Sabella, and an ironically named tidal company “Sustainable Marine Energy” and Tocardo International… all failing.
A world war is going on Havent you noticed Oh and a fiat currency rejection to boot
1) Gold 1M : 1980 high was 850. After breaching the high gold dropped to 641.
2) When the Fed raided bank accounts in Oct 2008 gold took off to 1,923 in 2011, rising on x3 backbones. No printing.
3) After Mar 2020 raids gold popped up to 2,089. No printing. It was your money in
a positive feedback loop.
4) In Q1/2 2024 Gold might drop after testing/ breaching 2020 high. If so, TLT will rise towards wave 2.
If gold and bitcoin have similar trading patterns and are moving for the same reason, then you could say that gold=bitcoin and bitcoin=gold. But if gold is a store of value but bitcoin is not then the upward movement of both is irrational because the same object cannot have worth and not have worth at the same moment in time. I wonder how Schrödinger would see this.
Bitcoin is not gold, and never will be. Both have their use cases. There is no holy grail of ultimate value that you can control… the most valuable asset in the world, will always be “time”.
Bitcoin is mere psychosis ,Doug… Gold is real stuff ! How dee b t way , long time we don t argue …
The bond market, gold and bitcoin are making some intriguing moves but it’s always fascinating to understand the underlying factors influencing these trends.
I have a theory that Bitcoin was created by WEF/Davos.
The reasoning was to introduce us to digital currency. They did it in a way that was mysterious because magically no one knows who did it but it’s blockchain so everything is tracked. Mmmm. That’s weird.
The traceable part is why I feel that someone in control created it.
Oh but it’s anonymous and you can buy it on the dark web. Have you ever met someone who was successful at buying it 100% anonymously? Meaning, no real IP address was recorded? I find it extremely difficult. Far more difficult than going to your local PM store and paying cash for a physical coin that lasts forever.
Notice the news will come out with stories about crypto being used in criminal activity or scams. As a business owner, we no longer accept checks, so the most common payment used in scams is now credit cards.
I feel like I’m involved in a scam now with Bitcoin. I bought MARA and RIOT 3 months ago. Bitcoin is now up 3% but both of those stocks are down 50%.
Holding onto cash seems like a scam because the government gets to dilute it’s buying power.
PMs have and continue to be manipulated. Large banks have been caught doing it and no one does prison time or looses their banking licenses because of it. We all know that when a government doesn’t increase the punishment of a crime to stop it, they don’t care to.
The best investment to me is still real estate. Not REITs either.
Agree with your theory Billy
Thanks Frederick. BTW, I feel it’s the same with NFTs and the Meta virtual world. Someone is wanting to create more of a supply with just computers. It takes money away from what’s real.
I’ve been wondering about this for a very long time, and I share you skepticism. The person/persons that created Bitcoin have never been identified which to me is strange. Satoshi Nakamoto, the pseudonymous person/persons behind the creation of Bitcoin, tweeted earlier this month, after a 5 year silence, “…we shall explore different aspects that were not explicitly contained within the white paper. These aspects are all parts of bitcoin, and are important. Some of these ideas were touched upon in the early years; now is the time to extrapolate and explain…”
https://twitter.com/satoshi/status/1708886029636137256
Is new idea/purpose for Bitcoin forthcoming? Who knows?
The treasuries and gold markets make sense to me. Lots of debt being spun out with no end in sight and China and Japan have lost interest in owning unsustainable debt. Gold is the millennial old sanctuary from currency debasement. Not sure what’s going on with bitcoin. Just a bunch of lemmings being herded into a high tech bubble thinking they’ll get rich. Good luck on that one!
Once again Alex and I are on the same page
You’re a wise man Fredrick! 🙂
“Not sure what’s going on with bitcoin.”
Same as Gold. The two are very much complementary wrt riskiness. One is a good hedge for the other.
For all the illiterate nonsense being thrown around about “governments” “making bitcoin worthless”: Governments have a much easier time cracking down on, and confiscating (in order to bacstop the all important “syyyyysteeeem” ….) Gold. Governments have lots of means of getting to physical anything, within their domain of exclusive terror. They’re not completely impotent wrt reaching out into cryptospace either; but their powers are much more constrained there.
Gold dropped nearly 10% on rising long term bond rates which increased the opportunity costs of holding gold. Gold recovered a lot of that starting the day after Hamas attacked Israel. It has nothing to do with charts.
gold is very much an Asia thing, and nowhere near as popular in most of the rest of the world. If gold is rising, let’s look at the profiles of the buyers… same goes for bitcoin – 90% of is inert, so who is accumulating it and where? generalisations don’t help.
I would agree with you in the past but in Germany and Holland there are lots of usGoldbugs and of course all the central bank buyers Even Costco is selling out of gold bars in the semi literate USA
It’s nowhere near the scale of Asia. Indian citizens alone buy far more gold than citizens of all western countries combined… then there’s central Asia, SEAsia, west Asia (the Arabs), and that’s before the behemoths of Russia and China.
You’re right Chaos and insanity tend to bode well for the shiny metal
Any thoughts on the end result and when?
cuts to budgets seem inevitable, and probably resisted hard, but it’s futile.
the chaos that would ensue from a hypothetical default would be highly unpredictable.
immigration won’t fix it. there is a tipping point at which debt and its perceived riskiness puts rates at a level that breaks things, and we’re not there yet. we are at a point in human history where many nations are looking for outsiders to blame, and that creates a heightened risk of war, and war is another way to repair the balance sheets.
needless to say, i disagree and agree with several of Mish’s statements and assertions across the board. for a start, this notion of there being inflation is so groundless, it must be a semantic thing about the word inflation itself.
inflation requires financial expansion in order to exist; where is the credit expansion and expansion of actual money (as opposed to bank reserves, which are not actual usable money)? eurodollar collateral continues to be constrained.
Inflation is default. Hyper inflation is blatant default and the ensuing chaos is all around us. USTreasury Bonds are not worth a tinker’s damn. Only ones buying are bankers who must buy their quota or get escorted to the roof of the bank for one last view of the city.
Chaos is San Francisco, South Chicago, Portland, Oakland, Seattle. Chaos is the House of Representatives that just now realized they are fresh out of other people’s money. Chaos is the open border. Chaos is election fraud on a national scale. Chaos is the UAW strike. Chaos is the housing market, commercial real estate, and auto loan defaults. Chaos is fuel prices, food prices, electricity prices, Chaos is the US public schools.
So true on all levels
But it’s not true on any level.
So deflation is repayment?
Inflation can only be default if the debtors (including governments, can ensure that they only pay the nominal amount on debt – but it depends on the rate they got when the debt was created, and the maturity date of the debt).
There is no inflation. There is no inflation. There is no inflation.
Inflation requires the expansion of money supply, which implies the expansion of credit. The opposite is happening.
There is deflation. There is deflation. There is deflation.
Price rises are not inflation. They are contrived via policy decisions like lockdowns, sanctions, netzero, etc… Price rises that masquerade or are misreported as inflation are a sneaky way to harvest extra “tax” from the economy; i.e.: the proles.
All that chaos you describe in America is policy driven, not inflation driven.
We are debasing the currency. That’s what is happening. The only way out of this much debt is to do so.
The government cannot inflate its way out of debt.
While the existing debt will be paid back in cheaper dollars, the increase in the price of goods and services (which the government uses), as well as inflation adjustments to SS and the tax brackets, means the government will have to borrow even more just to maintain existing programs, much less fund any new ones.
Transfer payments are NOT adjusted for true inflation.
Or, god-forbid, cut expenses? How about collect more taxes? 87,000 new IRS agents for what? Perhaps a crackdown on cash, gold and bitcoin are in the works?
Seems the other way out is take us to war and ole Grandpa Joe is doing a fine job at that
The mainstream media will point the finger at the butcher, baker and candlestick maker.
In regard to treasuries, don’t forget demographics. A thirty year treasury isn’t of much value if one is in his sixties. Twenty years are an even money crap shoot.
But it’s my understanding that the only buyer left for that trash is the FED
You don’t understand the bond market