News that Moves: Dangerous Divergence, Bond Auction Spin

RCM Comment: I posted a challenge yesterday and as yet only one taker. I received an email from Gary Rosenthal (a/k/a, Dad) labeling the stories correctly. So, is the contest over? Should I send him the prize? I think the answer has to be, no, on account of the proverbial apple and its proximity to the tree perhaps disqualifying Dad. So, Tim, Greg, Bunny, Philippe and everyone else: I know you are out there. Give it a shot; the prize awaits.

Global Money Trends Magazine:

At the same time that TLT (ETF of US Treasuries) and the US$ Index having been trending lower, indicating that foreign investors are dumping US-assets, global commodity and stock markets, were moving in the opposite direction, trending higher, amid what’s been dubbed a “green-shoots" rally.

When the two asset classes move in opposite directions for long periods of time, characterized by tumbling bond prices, and rising stock markets, this phenomenon is dubbed a “dangerous divergence.”

RCM Comment: Well said by GMT. Trade the rally? Yes, but don't stay too long and recognise the cracks in the wall. Today's action could be one of those signs:

BONDX Nice Going (-03/32 3.560%)
The $35B 5-yrs went at 2.310% with a 2.32 bid-to-cover and indirect take of 44.2%, the outing was solid. The results were against an average 2.13 cover over the past 16 auction since the start of 2008, and a 29.2% indirect bidder take. The market had been looking for a solid showing, and while this was less impressive than the 2-yrs, that was to be expected. The market had been looking for a draw of 2.33% plus and liked the lower yield. The 2-to-5-yrs were able to pull out new highs on comparatively decent volume for the 5-yrs. (Please see Bond page for charts and more)

This is the story that ran at 1:12pm today. The spin as you can see is positive, but the bond market price action after the news is deadly. Bonds are selling off hard and equity prices are suffering. This is a key relationship that must be respected.