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I suggested last weekend that the final ending diagonal appeared to be playing out and that’s still the case this week.  There’s a bit more however.  The world is ripe for a major top and major turns in many, many major asset groups. 
 
Leveraged bond funds and leveraged hedge funds are the most extreme shorts in the bond market in history.  That is, these funds are betting in a very leveraged, indebted manner that interest rates are still going lower and, therefore, bonds are going higher.  Just like last week’s call by Bill Gross that German bonds are the biggest short opportunity of a lifetime.  Our own bonds may be the biggest short of a lifetime.
 
Again interest rates can’t get below zero for very long as depositors have to pay banks to hold their cash.  The complete opposite is occurring in stocks however.  Leveraged long positions and stock margins have never been higher in us history.  The Russell 2000 small cap futures markets hold the lowest number of speculative short positions in 15 months.  It will not take much to get this as low as in 2008 right before the collapse in that index. 
 
In the 10-year bond futures market, the large speculators show the largest net long position on record so  something is about to go haywire in the bond market.  And speculators are so convinced that volatility is not coming back that both large and small speculators in the VIX futures are holding the heaviest short position in 16 months. 
 
So the major consensus everywhere in futures it interest rates will tumble to negative rates, small cap stocks will never peak and volatility will be low forever.  As Joe Granville used to say, “When it’s obvious it’s obviously wrong”.
 
And it doesn’t take much convincing for speculators to jump on any hot new idea.  For example, this week in Greece, the government announced their monetary problems are as they put it “contained” for now.  Speculators bought up Greek bonds so quickly the yield dropped 60 basis points in two hours.  That’s like jumping into a river full of piranhas and daring them not to bite you.  And the very notion that China might initiate its own QE on Monday saw the dollar drop and crude oil futures jump as speculators poured in like hungry carp at a marina. 
 


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