Are Yields Breaking Out?

10 Year Note InvestWithAlex

About a mount ago we asked if yields were about to break out. At that time the 10-Year Note ran right into resistance at 2.25% and paused. That is no longer the case. As you can see from the chart above, yields have now pushed above that level.

The 2.25% resistance line was nothing to sneeze at. It held for well over a year. The next major long-term resistance line is at around 2.6%. This brings out a number of important questions. In fact, more questions than anyone can answer at this point. For instance,……

  • Was the secondary bottom in yields set in early January?
  • Will yields now stage a multi-year, even a multi-decade advance?
  • Is this signaling the FED will raise rates and soon?
  • Does this spell doom for the stock market?
  • Etc….

Only time and market action can answer the questions above. At least for now, I am sticking to my overall long-term forecast. The secondary bottom in yields of 1.4-1.5% is not yet in and we are on schedule to see it over the next 12-24 months.

Although I might change my opinion if yields are able to break out above 2.6%. Further, this is the most important market to watch over the next few months. Should yields break out and spike, we might have another 2008 on our hands.

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Are Yields Breaking Out? Google

Why Robert Shiller Is Wrong About The Bond Market Crash

Daily Chart February 17th

2/17/2015 – A positive day with the Dow Jones up 26 points (+0.15%) and the Nasdaq up 5 points (+0.11%) 

On January 31st I told my subscribers that the market might bottom and turn around at the Dow 17,050 (+/- 50 points) on February 3rd (+/- 1 trading day). The Dow hit an Intraday bottom of 17,038 on February 2nd and we are up a little over 1,000 points thus far. If you would like to find out what happens next, please Click Here. 

I tend to find myself agreeing with Robert Shiller, more or less, about 50% of the time. For instance, I couldn’t agree more with his overall view on the stock market and today’s valuation levels Shiller’s back, and he has more depressing news  Basically, the stock market is an overvalued and highly speculative mess driven by massive capital infusion by the FED. And investors who believe that this upside trajectory can continue for the foreseeable future are deluding themselves. Just as they did at 2000 and 2007 tops.

With that in mind, I believe Mr.Shiller is dead wrong on his view in terms of bonds. Shiller warns bond investors: Beware of ‘crash’!  At least for the time being.

Here is why yields will continue to decline as the yield curve flattens further.

  1. The bond market is starting to see a severe recession and a bear market within the US Economy. Our mathematical and timing work confirms the same. Showing a significant recession and a bear market between 2014/15-2017. 
  2. Typically, 30-year bear markets in yield do not end in a V shape form. When such long moves complete they often set a secondary bottom (at least). This fits well within our overall economic forecast as we anticipate yields to set a secondary bottom over the next 2-3 years. In 2016 to be exact.
  3. There are a number of open gaps leading all the way down to 1.4-1.6% on a 10-Year Note. Again, it is highly probable yields will go there over the next 2-3 years.

In other words, our work suggests that bond yields are acting rational and will not crash over the next few years. The same cannot be said about the stock market. In fact, when we put all of the above together, it becomes evident that the US Economy and the US Stock Market are in real trouble going forward.

BTW: GARY SHILLING (not to be mistaken with Robert Shiller) AGREES: Buy bonds because deflation is here

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2014/15-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years.  If you would be interested in learning when the bear market of 2014/15-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. February 17th, 2015  InvestWithAlex.com

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Why Robert Shiller Is Wrong About The Bond Market Crash Google

Citi’s Chief Equity Strategist: Forget About The Bond Market, Stock Market Will Rally.

citi chief investment

At least at the Citigroup, the bull market never ends. That is unless and until they have to beg the American taxpayer for billions in bailout money.

“We think [the reason for falling yields is] pretty technical. Look at jobs, auto sales, planned capital expenditures — none of that is indicative of something ominous in the economic data.”

So what explains it? Levkovich believes the justification for the bond rally has been driven by technical factors like people covering short positions, which he’s heard that banks and a number of institutions have had to do.

The bottom line in his view is that “people have been reading a little too much into it.”

Reading a little bit too much into it? Huh. I am not sure how many times investors have to learn the hard way not to discount what the bond market is telling them. What is the bond market saying?

As the most recent action indicates, it is screaming out that the recession is just around the corner. You can learn more about it in my previous post The Shocking Truth Behind The Bond Market Conundrum Explained

This is further confirmed by our mathematical and timing work. It shows a severe bear market between 2014-2017 that will retrace most of the gains accrued over the last few years. One thing is for sure, ignoring today’s yield curve compression (at this stage of the bull market) will be very detrimental to your overall wealth.

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100% Of Economists Agree Yields Will Rise. What That Means Should Send Chills Down Your Spine

When 100% of surveyed economists expect yields to rise you better perk up and pay attention. From a contrarian point of view.  In Bloomberg’s recently conducted survey, 67 out of 67 Economists expect interest rates to rise over the next 6 months. In other words, they expect continued economic growth and an eventual tightening by the FED.

That flies in the face of our forecast. In the past I have shown that we expect yields to fall and the yield curve to flatten as the US Economy falls into a severe recession between 2014-2017 What Does The Yield Curve Yield?  In fact, over the next 12 months the FED will be looking for ways to stimulate the economy and to print, instead of tightening. As far as I am concerned, 100% of the economists agreeing on the opposite is a direct validation of that view.

Don’t forget, our mathematical and timing work shows a severe bear market between 2014-2017. When it begins to develop, it is only rational that yields decline. If you would be interested in learning exactly when the bear market will start (to the day) and its subsequent internal composition, please CLICK HERE

10 Year Note Chart

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100% Of Economists Agree Yields Will Rise. What That Means Should Send Chills Down Your Spine  Google

Market Watch: 100% of economists think yields will rise within six months

Economists are unwavering in their assessment of where yields are headed in the next half year.

Jim Bianco, of Bianco Research, points out in a market comment Tuesday that a survey of 67 economists this month shows every single one of them expects the 10-year Treasury  10_YEAR +0.41% yield to rise in the next six months.

The survey, which is done each month by Bloomberg, has been notably bearish for some time now, with nearly everyone expecting rising rates. In March, 97% expected rising rates. In February, 95% expected yields to climb. And in January, 97% held that expectation. Since the beginning of 2009, there have only been a handful of instances where less than 50% expected rates to rise.

Still, the fact that every single survey participant is bearish is striking. The last time the survey had that result was in May 2012, when benchmark yields were well below 2%.

“Literally there is maybe one economist in the United States straddling the bullish/bearish divide on interest rates. The rest are bearish,” Bianco writes.

He adds that a J.P. Morgan client survey shows that the percentage of money manager respondents who said they are underweight Treasurys is the second highest in seven years.

This is all the more surprising when we consider that investors went into 2014 thinking yields would rise significantly. Instead, the benchmark yield is lower than when the year started, as the market waded throw subpar economic data, geopolitical tensions, and uncertainty over the Federal Reserve. The 10-year note last traded at a yield of 2.72% on Tuesday, down from just over 3% on Dec. 31.

Then again, a separate poll of economists recently showed that exactly zero expect the economy to contract.

But when the entire market thinks one thing is about to happen, the opposite outcome is often in store, notes James Camp, managing director of fixed income at Eagle Asset Management. So don’t count out that result with Treasurys, he advises.

“It’s the most hated asset class,” says Camp, but Treasurys are some of the best performers year-to-date.