David Stockman explains why the stock and bond market could be on the verge of a collapse.» Read More
"We're moving toward an ah-ha moment in the market where people begin to realize that these bouts of QE over four years have not produced escape velocity in the domestic economy," he said. "The domestic economy is not self-sustaining. Wealth in the stock market is not trickling down. And we saw flat revenues in the first quarter. Yes, earnings were up 3½ percent, but half of that was from buybacks. There's an artificiality in both bond prices and stock prices."
Kass said that he had misjudged the effect of quantitative easing by the world's central banks.
"I underestimated the impact that global monetary easing would have and that there were few alternatives to equities," he said.
Bond yields have surged in the month of May. So just how much have retail investors lost?
Almost five years.
On July 25, 2012, the 10-Year Treasury yield hit a low of 1.38 percent. And on Wednesday, yields finished the day just shy of 2.04 percent, as investors became concerned that the Federal Reserve will taper quantitative easing sooner than previously expected.
(Read More: Fed Mulls Tapering as Soon as June: Minutes)
That huge move in yields translates into a gigantic difference in how long it takes bond investors to get their money back. To make up for this jump in yields, bondholders would theoretically have to hold their bonds for 4.8 years longer to make the same amount of money that they would receive if they bought bonds today.
Worse, if bond yields continue to rise on the theory that the Federal Reserve is about to taper its bond purchases, then those who bought bonds at the bottom will be missing out on more and more money. Adding insult to injury, the S&P 500 has appreciated by 24 percent since then.
As Federal Reserve Chairman Ben Bernanke testified before Congress, yields on 10-Year Treasurys touched two percent for the first time since March. This as investors became nervous that the Fed could wind down their bond-buying program sooner than expected. Of course, this also has the potential to negatively impact the stock market.
All eyes are on the Federal Reserve.
Gold's choppy overnight trade kept the metal above $1,380, and it rallied to $1,388 shortly after midnight. Traders will be tuning into Fed Chairman Ben Bernanke's testimony in Congress on Wednesday morning for any clues about the bank's bond purchasing program.
Additionally, the Federal Open Market Committee Meeting minutes will be released in the afternoon, and traders again will be looking closely. The big question is when the Fed will stop or taper quantitative easing.
(Read More: Hilsenrath: Here's What Bernanke Will Say)
With Consumer Confidence at the highest levels in years, and the equity market continuing to rise, gold has taken a back seat as investors flock to more attractive investments. The metal was able to trade well off the lows it put in on Sunday night, but gold has been capped at $1,400. Only a close above $1,404 will be able to signal a potential bottom in this market.
In a hearing starting at 10 a.m. EDT, Federal Reserve Chairman Ben Bernanke will go before the Joint Economic Committee to give his outlook on the U.S. economy. But what investors will really be listening out for is what Bernanke says about when quantitative easing will end.
However, according to The Wall Street Journal's chief economics correspondent, Jon Hilsenrath, the chairman's testimony could be hamstrung by disagreement within the Fed.
Gold prices fell two percent on Tuesday, surrendering much of the previous session's hefty gains, as strength in the dollar against a basket of major currencies weighed on the precious metals.
Gold, down in seven of its last eight sessions, fell on a firm dollar, weak technical signals and speculation that the U.S. Federal Reserve might rein in its stimulus program.
Meanwhile, silver remained under pressure, but well off Monday's lows, when it slid nearly 10 percent to a 2-1/2 year trough, on heavy fund liquidation in Asian trade and generally weak fundamentals for the metal.
It's been a tough month for bonds. In May, 10-year Treasury Notes have dropped by four and a half percent. But with Fed Chairman Bernanke testifying before Congress on Wednesday, would you rather be long or short bonds right now?
Crude oil was extremely volatile last week, with big moves both to the upside and the downside, but one pattern did emerge. The range it has traded in has held over the last few weeks. Crude oil has been a sell in the $96.50 to $97 areas, and a buy between $93 and $92.
But let's take a closer look. I would like to buy dips in crude this week for two reasons.
First, as we head toward Memorial Day weekend, demand for products picks up. This applies to gasoline to be sure, but in addition, demand for ultralow sulfur diesel (the former heating oil contract) has been strong, so that alone should keep crude supported for this week.
Second, there are rumblings on the geopolitical front. Syria is still out of control, Iran nuclear talks are going nowhere, and over the weekend, North Korea launched short-range missiles.
Because of these overhanging geopolitical factors, if you are shorting crude, you have to place stops. Indeed, if something breaks out, crude could instantly pop $20. That has always been the interesting dynamic of crude: Any news about it usually means it will spike higher.
Only economic weakness sends it lower. And for now, the U.S. seems stronger, and demand worldwide has been growing.
So where would I buy in to this market?
The support areas at which I would look to buy are $95 to $94.50,and then $94 to $93.50. I would sell cautiously between $96.50 and $97.50, with a tight stop above $97.50. But I would rather trade it from the long side right now.
Expect gold to bounce when it retests April's low for the first time. But after that, there could be more trouble.
Gold opened up much lower on Sunday night, as metals took a beating once again. Silver was down as much as 8 percent, dipping to $20.25. Gold tested our next major support level, putting in a low at $1,336.30.
(Read More: Gold Heads for Longest Slide in Four Years)
Since the open, things have stabilized. Gold has reached back above $1,350, testing the electronic close from Friday, although still down more than $10 from the marked floor close. Silver has erased much of its losses, but is still down sharply on the day.
Much of this choppiness can be attributed to currencies, as the dollar index hit a high of 84.40. As we have said many times before, a stronger dollar will put pressure on commodities priced in dollars. Aside from currencies, though, gold's weakness has been no secret. Especially when the Consumer Confidence reading came in a six-year high late on Friday, there was additional selling into the close.
Look for the prior $1,335.60 low to act as a major support now, but note a retest will likely send this market lower, with less emphasis on the $1,321.50 April low. The next major downside level is $1,283.50, but as we have previously mentioned, a close below that could potentially send this market down to $1,154.
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