The Bond Bubble

One thing about bubbles is they go on a lot longer then you expect. I recall looking for a house around 2002-2003. There was one particular neighborhood I really wanted to live in, we drove that neighborhood every weekend for close to a year. We were inside every house that had been for sale, we had contracts 3x that all fell through for one reason or another. At the time, the median price was around $220,000-some at $175,00, some on the water at $350,000.

In any case, real estate wasn't really hot at that point and many houses had been for sale for over 6 months or more. I recall one small house only 100 feet from the beach, just cross the street, it needed work, but my father was a general contractor and I had worked with him growing up, I'm pretty handy. The house was $187,000.

We went on a 3 week vacation to Europe and when we got back, we drove the neighborhood as we always did each weekend. None of the houses we had looked at had sold, but they were now at least 30% higher in a matter of a few weeks. We didn't get it. The house I was partial to by the beach was sold, several months later a builder squeezed a 2 house town home on the tiny lot. Then slowly they started selling, the prices kept going up and soon you couldn't find anything for less then $300,000. Houses on the water started at $500,000. We had a fantastic, large apartment on the beach so I was in no hurry to move, I told my former wife that this was clearly a housing bubble and we should wait it out. Then it seemed like it would never end, prices were getting ahead of what we were willing to pay and we finally settled on a fixer-upper, but it had a large lot and it was in east Boca Raton, a fairly prestigious area. We bargained and after an inspection report that gave us some leverage, we got the house for $205,000. Within the next 18 months, you could virtually sell the lot alone for $400,000+. McMansions started popping up all over my neighborhood. Around 2007 I did a 5 part series on bubbles, the housing bubble included. I remember saying, "If you find yourself at a barbecue and everyone there is a real estate speculator (as everyone was) you know the end is near." This was the video I released while CNBC talking heads were still pumping the idea of Dow 20,000. I had a very different target, if I recall correctly, I said before this is all over, I believe the Dow will be trading at 5500. I know, pretty extreme, but this is the nature of the market. Soon the market topped and broke down and my site received a lot more traffic. I don't believe CNBC was unaware of the truth, I just don't think they were quite speaking it. I have nothing to gain by pumping or bashing, only by giving factual, unbiased and objective analysis.

So we have another bubble-I call the man at the Fed, Ben "Bubbles" Bernanke, although in fairness it's just a matter of Fed policy no matter who the Fed president is.

So look what we have, a possible bubble forming in treasuries.

Above is a negative hourly divergence in the Bull ETF for 30 year treasuries.

Above is the bear ETF (short treasuries) with the same hourly 3C, but in a positive divergence.

It seems that we will see this bubble burst as well, we can see the ground work being laid for it, the question is, id the Fed (Bernanke will be speaking this week) about to do something to impact treasuries negatively? Or can this bubble keep on going far beyond what we may have imagined?

In any case, keep your eye on this and those of you in the Wolf Pack that have a lot of experience in economics, or anyone with an opinion, please leave a comment. It's difficult to know what's going on, but we can obviously see that something is going on here.

The market may actually be in a holding pattern right now because of the pressure on Bernanke to act and his speach coming up tomorrow I believe.