Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

Bonds Persist in Their Warning About the U.S. Economy

Interest-Rates / US Bonds Aug 15, 2014 - 11:27 PM GMT

By: Sy_Harding

Interest-Rates

Bonds do not like economic strength, but love economic weakness.

It makes sense. In a strong economy there is upward pressure on interest rates, and therefore on bond yields. When bond yields go up, their prices go down.


In a weakening economy, there is downward pressure on interest rates as the Fed cuts rates to re-stimulate economic growth. When interest rates and bond yields go down, bond prices go up.

The Fed cut interest rates to record lows, near zero, in efforts to pull the economy out of the ‘Great Recession’, and along with other dramatic efforts, it worked.

However, the Fed has been of the opinion since December that the economy is now in a zone of sustained recovery. It is tapering back its bond-buying QE stimulus at an impressive pace, and already debating when it will begin raising interest rates to prevent the economy from overheating.

The bond market disagreed from the get go.

Although the consensus opinion was that bond prices would collapse as soon as the Fed began tapering back its monthly bond-purchases, bonds launched into a rally at year-end, the instant the Fed began to so do.

Bonds seemed to be onto something when it was subsequently reported that GDP growth had plunged into negative territory in the first quarter.

However, they continued to rally even after GDP growth recovered from its first quarter stumble. They continue to rally now even though the Federal Reserve assures us the first quarter was just a weather related glitch, and economic growth continues.

Unless the bond market’s ability to anticipate trouble has gone away, the bond market is still seeing the situation quite differently than the Fed.

It’s interesting that in a similar manner, bonds began rallying early in 2011, and we soon learned then that GDP growth had turned negative in the first quarter of 2011 (the last time it did so).

In 2011, bonds also continued to rally after GDP recovered in the second quarter, like now apparently still worried about the economy. The bond rally then spiked up sharply in 2011 when the stock market began to plunge on its own concerns about the economy. It was not until October that the bond rally paused, when the Fed, panicked by the stock market’s 19% decline, rushed in with promises of QE3 stimulus.

As in 2011, the bond market’s rally this year has continued even though the economy (GDP) recovered from its first quarter decline. By doing so, is it warning that the Fed is wrong this time too, that the economic recovery is not as sustainable as it seems and will need the Fed to bring QE stimulus back again?

If so, will the Fed repeat its 2011 lagging response by ignoring what the bond market and economic reports may be saying, and continue to taper back QE until the stock market scares it by plunging again?

The stock market is more overvalued than in 2011. And it has also gone for a similar unusual long time as in 2011 without even a normal 10% to 15% correction.

Its current pullback is only around 3% and it’s already trying to bounce off that.

But the continuing warning from bonds regarding the economy, and the deterioration of our technical indicators, do have our attention. So we shall see.

In the interest of full disclosure my subscribers and I still have a position in the iShares 20-year bond etf, symbol TLT, and initial downside positions on the stock market in inverse ETFs, ProShares Short Dow, symbol DOG, and ProShares Short Russell 2000, symbol RWM. We are watching our technical indicators for confirmation of a potential stock market top before adding to those initial positions.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2014 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Sy Harding Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules