When I wrote Opportunity, Bubble, or Both? I believed the answer was both: Certain stocks had bottomed -- or were in the process of being thrown overboard -- by funds shipwrecked on the mountains of margin (primarily energy and materials). I cited MLPs as an unusually shiny treasure tossed to the bottom of the margin clerk’s ocean floor.

But this isn't one of those.


Click to enlarge

Actually it’s the other one. I highlighted the potential of this powerful reversal circled above that day and it has followed through. This is the Proshares Ultrashort Lehman 20+ Year Treasury (TBT). It goes up when long-term treasuries go down.

Actionable ideas, instant analysis. Real-time from bell to bell.
Minyanville's Buzz & Banter - 14 day FREE trial

I have zero doubt there will be powerful data to support fears of deflation for quite a while, and overnight disasters where bonds will be well-bid. But I think the front-row seats from which to watch the building of the next bubble intrigue me even more.

I'll be surprised if we look back in 3 to 5 years and say, "What a great deal it was for those lucky souls who locked up 4% on the 30-Year Treasury - especially since they were running into each other to buy that safety." I’m simply not sure how safe that will look by then, at a time when inflation might be entering from stage left.

Currently, I'm rather uninterested in the debate of deflation or inflation, when, where, and whether bonds are being sold to buy stocks. Instead, I'm sticking to one of our most important trading rules: Do more of what's working, less of what's not.

And right now, for the first time in a long time, long-dated treasuries are being offered with more supply than demand.