Thursday, June 4, 2009

Rates WANT To Go Higher

First time jobless claims "improved" to 621,000 and same store retail sales came in fairly negative with 70% missing analyst estimates. Yet interest rates rebounded from yesterday's lows. Rates seem to want to keep going up and the momentum is still clearly in favor of higher rates.

As you can see, the Size number, my measure of volatility continues to increase indicating that the rally in rates may not yet be over.

I thought that rates could fall as several days ago, rates tested the closing high of 3.672. While the rate went slightly higher, to 3.715, other indicators showed that the momentum was slowing. Yesterday, rates dropped but could not break through the three day low. Now we are again, trying to fail on a three-day high test. Is this all confusing to you?

In the end, for the 10-year rates to reverse and start going down, I am looking for it to fail to break through the 3.715 closing high today. I am currently playing the rates to decline. The move in interest rates, while predictable, is now growing weary and is ripe for some backing and filling. Not sure how low rates can go at this point but I sense that the dollar trade is growing old. While I haven't taken a dollar position yet, I am looking for a test of the recent lows on the dollar. Should the dollar rebound, I will expect that you will need to adjust your portfolio to accomodate this move. I believe that most of the gains that we've seen in the stock market, gold, oil, agricultural commodities and so forth have been the result of a weakening dollar. Should the dollar strengthen, these markets will likely give up some, if not all, of their recent gains.

If you have some concerns about your portfolio and your potential risk, contact me at In addition to risk management, I stress tax efficiency in your portfolio. There are lots of other ways to improve your financial position. It's not always just about your investments.

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