Industrial Production should make you think Treasury bonds are Bubblicious

It wasn’t supposed to be this way, the Double Dip Recession and inevitable Deflation were a sure thing, but today’s Industrial Production figures of growth of 1% in July versus the consensus of .7% make want to give you pause if you’re loading up on Treasuries.  The figures were led by a big 9.9% surge in motor vehicles, the trend in vehicle production is the most since 1984 while year to year PPI growth is the greatest since 1998.

While this data is very good news for equities its quite bearish for Treasury bonds which are probably leaning too much to the side of buying exuberance.

Consider the following charts from, all three show far too much bullish sentiment to make a potential investment profitable.   Investment profits are very seldom made when sentiment is so extreme as the data suggests it’s likely wiser to be a seller rather than a buyer.

These remain very uncertain times but we feel its in error to chase strength, let any market correct itself where you can make your buys on your terms not the market’s.

Allow me to put this another way:  With the yield on the 10-year Treasury now at 2.58% it has a P/E (Price divided by Earnings) of 38.7 which is quite close to the bubble era for the NASDAQ in 1999.   The current P/E of the S&P 500 is now 12.

Be careful out there

Brad Pappas

Non confirming markets

Both the US stock market and Treasury market are seeing non-confirmations in the most recent moves lower.

US stock market:

Advance / Decline line is not confirming the move lower as the average stock is not falling with the market indices.

New Lows: The number of new lows continues to shrink when compared to the two other times we’ve been this low in the past month.

VIX: The VIX which is a measure of volatility which peaked in this cycle at 45 in May closed yesterday at 34.’s Intermediate Term model has moved to excessive pessimism once again. Generally a good time to increase long exposure.

In the Treasury market:

Investor Sentiment is at the highest since December 2008, not one of the better times to be buying bonds. Plus we have to be concerned with the thought of worldwide investment managers buying US Treasuries to look good for their clients in light of the decline in Euro bonds, otherwise known as “Window Dressing”.

Lastly, the decline in US Treasury yields is not confirmed by the bonds of other G-7 nations.

The Tesla IPO has gained a great deal of attention but it has to be time to ring the register. There will be other times to buy this if it can deliver something other than losses. I just read the battery for the car costs $30,000 and does not work in cold weather. Well, that pretty much kills the potential for a Tesla at 8000 feet in Colorado.

No positions