A viewer ask if Government bonds and stocks could fall at the same time? What ya thinking about now? Low odds if ever this would work? No doubt shorting stocks and Govt. bonds at the same time would seldom pay for investors!!!
The key to his question wasn’t should you bet that way, it was “have they both (govt bonds and 500 index) declined together?” And the answer is YES! Since the answer is yes…when did it happen and what were the surronding macro circumstances!
Below is a chart I shared with premium members on 9/27, reflecting an “Odd” time frame where it would have paid to short government bonds and the 500 index at the same time and made money in both positions…
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Is it an odd idea to short bonds and stocks at the same time? MORE THAN ODD… 90%+ of history its a Baaaaaaaad Idea! So why did they decline together in 2008? I suspect that GE1 (great escape part 1) caused investors to sell their winners after TLT rallied over 30% in a matter of months.
So how does TLT look today? Anything like 2008? Yesterday in the post “TWIN PEAKS” the Power of the Pattern is highlighting that TLT could be making a key double top. See TLT update below.
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I have one brain cell which leads to a very complex belief system…”if something has happened once, it could happen again!”
The jury is for sure out if GE2 (great escape 2) will happen. Could it pay to short stocks and bonds at the same time? Could bond owners decided too or be forced too sell their winning holdings if the majority of their asset start falling in price/deflating? As we all know, very few times has it paid to short both at the same time, yet their was one macro situation that it did pay off!
Is it different this time? Nothing is proven that this will happen again, yet stay tuned and keep an open mind to rare situations and people repeating their actions!
I’m more inclined at this point to believe there is a short-term (one/two month) risk reversal taking place…
Most of the market internals did not confirm the new low in stocks (i.e., no new high in VIX, no new low in NYSE adv/dec ratio). Further, new NYSE 52 week lows at panic/fear max levels similar to other major bottoms (i.e., 1998, 2002, in front of temporary rallies in spring 2008).
Dollar rally has lost some steam with the currency, as you’ve pointed out, failing at Fib resistance this week and now breaking up-trend (steep up-trend albeit).
As such, seems like risk assets have some runway in front of them for the next month or two.
I do know that 1257 (Dec 2010 close) likely caps upside into any Oct/Nov rally…in secular bear markets through history there have only been 3 straight up years one time, with seven out of the other eight years following two straight up years being down, with the average loss being 18% for the year.
I don’t know: For the past 1-2 months TLT has been tracking the stock market in reverse, very closely – if you superimpose RWM (the ‘favorite short’) on TLT they match closely (in fact, TLT does somewhat better – it’s like a short that pays dividends). This morning, only, the pattern changed – but one morning does not make a trend! Right now, it looks as though TLT just found support… while stocks just hit resistance.
So maybe the long bonds (at support)/ short stocks (at resistance) will continue to work for a while. (?)
Belsha…good pair trade, not in stock bull markets. GEI or GE2 is for sure rare and don’t know that 2 will happen. I did want investors to see even though it is rare, it can happen and what was the set up/macro situation the last time it did take place.
Couldn’t this be a quite” safe” pair trade ? Since bonds and stocks most of the time move in the opposite sense, it should be flat most of the time, but very profitable in these rare panic selling GEII moments…