Wednesday, May 27, 2009

View From the Top

Yields on the 10-year note rose to a critical resistance level yesterday, the 10 month moving average. For years now, this moving average has provided the cap to yields and until proven otherwise, it must be respected.

Apparently I'm not the only one seeing this resistance. In a Bloomberg report this morning, some analysts expect yields to fall back down to the 3.25% level by the end of the year. Rates were at 3.15% just last week before surging to the 3.56% level.

I wondered how we might find ourselves in a position of a falling stock market and rising yields. Certainly if the stock market challenges the low levels it made in March, the accompanying economic news will surely be gloomy and will have to have an effect on rates. Reviewing the charts of rates and stocks, each seem to be at an important high point and may begin to fall together.

I began taking some profits yesterday perhaps a little early. I want to have lots of ammunition in the event of another market meltdown. My rationale is that even if the market meltdown doesn't come, the core stock portfolio is up more than 11% this year. But I caught myself the other day discussing the current economic situation with a prospect. I was saying that in reality, there is no new wealth being created. Markets are rising because all of the new trillions of dollars need to find a home. The biggest loser is going to be the one holding the cash because the continual flow of new dollars will erode the dollar's value. Only by keeping it invested in something can we hope to avoid the inflation.

In the end, it's all a big shell game. Where do you keep the money so that you don't lose wealth and also keep up with inflation?

Markets Steady This Morning

So far this morning, markets are quiet after a strong day yesterday in both stocks and rates. Still looking for the three-week test of the high in stocks. We might have reached the peak already as yesterday's weekly Dow chart illustrated. 10-year rates could also be at their high as they are touching resistance levels. If you have some nice profits as we here do, be sure that you preserve your wealth and don't let these great gains slip away. Remember, 'The Market Giveth and The Market Taketh Away.'

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