BAA-TYX & POMO Update
BAA-TYX & POMO Update
I just spent quite a bit of my Sunday updating my BAA-TYX spread chart – and boy was it worth the effort. Last time I posted this long term risk indicator was in late August, so it was time to catch up and see if the interim readings were supportive of the melt up we saw all fall and early winter.
What can I say – what I’m seeing is not very encouraging for the bears, at least on a medium to long term basis.
[amprotect=nonmember]Some kick ass charts and confused rambling below for anyone donning a secret decoder ring. The rest of you guys will have to wait until tomorrow – sorry. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.[/amprotect] [amprotect=1,9,5,2]
And here it is in all its glory – chose the 10-day MA although the raw data itself is pretty smooth. As you can see, although the 30-year TYX has been rising as of late the spread between the BAA and the TYX has actually been dropping. We are now almost back to late 2007 levels as the raw delta is currently at 1.58.
Although I do expect a retracement in the short to medium term it seems to me that long term risk perception is quite low. In 2007 we started to see distinct divergence near the all time top. Thus far we are not even close. So, this may spell big trouble for any bears still betting on P3 in 2011.
I also updated my 20-day rolling POMO chart and the picture is equally distressing to any remaining bears. Folks there remains a ton of POMO cash in the system. We’ve had one every single trading day since New Year’s and the rolling total at this point is $81 Billion. This will assure that any fast drops will merely serve as dip buying opportunities for the Fed’s fat cat primary dealers.
As I said last month: For anything really long term bearish to transpire we’ll need to see the Fed drain the POMO swamp and that means the chart above will have to approach zero. No, not even a drop in the outstanding rolling total seems to have any statistical significance. Plus we’d also like to see things shift on the yield front – which means a rapidly rising BAA, not just an upward adjustment due to a push up on the long term treasury front.
[/amprotect]BTW, in case you’re still waiting for justice, fairness, and regulation to take place on Wall Street (or in Washington for that matter):
Hat tip to gold_gerb. So, who’s next – Freddy Krueger? Kim Jong-il? Hey, maybe Berny Madoff and his cell buddy! Classic…
Cheers,
Mole
