The next Black Swan will show up in the bond market.

What if they held an auction and nobody (foreign investors) showed up? With the dollar in decline and foreign investors earning low rates and being exposed to currency risk, and a downgrade to US debt looming in the future, one of these bond auctions in the near future will be a bust.

Another trigger for the foreign investors to boycott could be Obamacare that will push the US debt even higher and ever closer to a downgrade.

The Fed likes to think it controls interest rates, but in reality it doesn’t. The market does. If nobody buys at these auctions, rates will rise. Rates on the ten year are creeping up over the past couple of weeks, and if this continues, the dollar will rally as rates rise, with or without Fed action.

Commodity prices will fall, and after a brief spike, gold will follow all other assets down too. The “dollar driven stock rally” will go into fast-forward reverse as everyone heads for the door at the same time.

Remember, the dollar trade is very crowded on the bearish side. One good spike up the dollar will cause a run for the exits here too and the profit taking and short covering rally could be monumental. If this happens, the stock market will have an 8 handle very quickly.

- VegasBill

Related Posts:

• Funny auction yesterday proves the continuing change the Chinese are making from the long to short end of the bond market.
• This nonsense of playing with interest rates going up and down like a yoyo needs to be put to a stop.
• This nonsense of playing with interest rates going up and down like a yoyo needs to be put to a stop.
• Its not sustainable - there no longer is a global market for treasuries.
• As a licensed financial advisor, I can say that the idea of a forced IRA/401k annuity by the obama administration is such a terrible idea.

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