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This Market Is Weaker Than a Wet Paper Bag

By Tom Dyson, publisher, The Palm Beach Letter
Monday, May 4, 2009

Here's the magic number: 124.07. That's the number you need for shorting U.S. government debt.

In my DailyWealth column April 13, I said if the long bond fell below 124.07, it would signal a bond bear market. Well, the long bond closed at 123.26 last Tuesday and is now making new five-month lows…

The "long bond" is the nickname for the 30-year Treasury bond. It's the longest-dated debt instrument the U.S. Treasury issues. And on March 18, the Federal Reserve announced it would buy $300 billion "longer-dated" Treasury bonds.

This was the news the bond bulls had been waiting for. The world's most powerful central bank was going to pump $300 billion into their market over the next six months.

Long-bond investors must have thought they were about to get rich... but the market didn't oblige. There were too many sellers.

To make successful short plays, old-time traders will tell you, "Throw your rocks into the wettest paper bags." The long-bond market is a wet paper bag. The long bond is so weak, not even the Fed's printing press can hold it up.

If you own any long-dated Treasury bonds, sell them now. This market is in danger of imminent collapse. The next major stop for this market is 112.5, the lows of 2008. Take a look…


To watch the action in the long bond price, use the iShares Barclays 20+ Year Treasury Bond fund. The symbol of this fund is TLT. This fund is a giant basket of long-dated Treasury bonds. It's one of the largest and most liquid ETFs in the world. The movements in this fund represent the movements in the long-bond price.

Right now, TLT trades at about $97. As long as TLT is trading below $100, assume the long bond is in a bear market and the path of resistance leads to lower bond prices. 

Good investing,

Tom 

P.S. A major decline in the price of the long bond will send interest rates up all over the world... from mortgage rates in Hong Kong to insurance rates in Anchorage. In my next column, I'll tell you how to avoid investments vulnerable to a big decline in the long bond. 




Market Notes


NEW HIGHS OF NOTE LAST WEEK

Jos. A. Bank (JOSB)... clothing
Steven Madden (SHOO)... shoes
O'Reilly Auto (ORLY)... auto parts
National Beverage (FIZZ)... soft drinks
BJ's Restaurants (BJRI)... restaurants
Green Mountain Coffee (GMCR)... coffee
Hansen Natural (HANS)... soft drinks
Sourcefire (FIRE)... network security
Williams Pipeline (WMZ)... pipelines
Clarient (CLRT)... diagnostics services
Big Five Sporting Goods (BGFV)... sporting goods
Orchids Paper Products (TIS)... paper products
ICU Medical (ICUI)... medical supplies
Quality Systems (QSII)... medical information
Cornerstone Therapeutics (CRTX)... drugs
AMAG Pharmaceuticals (AMAG)... drugs
Central Garden & Pet (CENT)... you guessed it... garden & pet stuff

NEW LOWS OF NOTE LAST WEEK

Not many... it's a rally, you know!

In The Daily Crux



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