It May Not Be the Right Cut

Earlier this month I sold out of a long-term short in Treasuries (long TBT, an ETF ultra-short TLT, seen below on the weekly chart; long TBT is basically a bet on higher rates and lower Treasury prices). As I noted with Members, my long-term view is still that the bond market is in serious trouble, but I saw a better entry price coming later this summer amid rate cut fever. 

Put another way, the main scenario I see is one which few people are entertaining in any type of serious manner, which of course has me sticking with that view from a contrarian perspective. 

And that scenario would be where The Fed cuts rates, but the bond market revolts and does not buy bonds and push rates lower, but rather the opposite--The old bond market vigilantes come back to town and wreak havoc on global markets as rates skyrocket to everyone's horror, especially a shell-shocked Fed and Treasury Secretary. 

After all, now we have the Bank of Japan more seriously defending the Yen with a rate hike which many said would not be done. China has been cutting Treasury holdings, to boot, as our national debt skyrockets. One reason why so few take this scenario seriously is because it has been so long since Wall Street has seen anything resembling a Treasury market vigilante. 

But mostly we have been in a long stretch where it seems like "nothing ever happens," insofar as a lack of negative consequences. History says that is a mere optical illusion before the chickens come home to roost, which has me thinking of re-upping the TBT long sometime into the September FOMC, if not before. 

On that note, Powell did his best to "non-telegraph telegraph" a September rate cut today with his usual lawyerly speak. The Nasdaq is pinned against its 50-day moving average headed into META earnings tonight, then AAPL AMZN tomorrow evening.

Chips are going bananas off AMD and NVDA today. However, recall that these outsized moves often occur in the context of an overall bearish tape.