‘Affordability’ Will Be Trump’s Waterloo

My hardcore deflationist point of view has saddled me with a bullish bias whenever I ponder a T-bond chart. Although this allowed me to catch the October 2023 bottom just off the low, it also caused me to see the nearly two-year dirge that has occurred since as base-building for a long bull market that has yet to materialize. I don’t doubt that it’s coming, presumably in conjunction with the next recession. But TLT’s chart suggests it could take many months before it rises and, inversely, yields begin to fall. In the meantime, look for it to scuddle sideways, with a moderate bias to the downside that would correspond to merely somewhat higher long-term rates.  Altering our expectations in this way can help diminish the distraction of believing Trump can do something about it — i.e., about rates determined by markets, and about high levels of debt that are crushing America’s middle class. He can’t, and his expansionist, credit-driven economic policies will only exacerbate the bearish trend in bonds. Suppose the small rise in their price over the last two years has completely discounted the global appeal of Trump’s bold leadership and the additional demand this has created for U.S. Treasury paper. In that case, it’s hard to imagine a bullish surge in T-bonds when the President’s inflationary policies produce the opposite of instant economic miracles: stagflation.

You can feel the ponderous weight of supply in the daily chart (see inset).  Although the pattern lacks the symmetry of a textbook head-and-shoulders formation, there are enough similarities to infer that bulls are headed for a fall. Friday’s nasty bounce, a short-squeeze assisted by an army of by-the-dip dipsticks, left bears bleeding on the ropes. But because they are still breathing, expect a buoyant opening Sunday followed by a mild upward drift. DaBoyz will extract as much mileage from this non-bullish buying to reach the green line, where a conventional ‘buy’ signal would trigger. It’s hardly a stretch to think the squeeze could continue to p=6812.50, and so we shouldn’t underestimate the ability of DaBoyz to do whatever it takes to make that happen.  If they should succeed at the unthinkable and achieve new record highs, we will want to get short up there aggressively.  _______ UPDATE (Nov 17, 10:08 p.m.): See my ES posts in the chat room today if you want a road map. The updates got everything just about right from bell to bell. I will be in there again on Tuesday, calling the turns and convinced that the Mother of All Bears has finally arrived. Before November is over, the 500-point drops in the Dow we’ve seen lately will turn out to have been just a gentle warm-up.  Outside of the Bitcoin crowd,  investors are not quite ready to hit the panic button, so confident are they that the buy-the-dips bozos will step in at any moment. They just might, but we’ll want to fade their action with increasing aggressiveness the higher they take this brick. _______ UPDATE (Nov 18, 11:18 p.m):  The futures tripped a minor ‘mechanical’ buy signal at 6626.75 that is predicated on a 6725.00 target.  Short there only if you’ve made some bucks on the way up, or if you know how to fashion a ‘camouflage’ set-up that would limit theoretical risk to no more than $200 per contract. Please refer to my post in the chat room today at 14:23 for a detailed example of how to do this.