Monday, November 15, 2010

Are We Starting to Get Back to Reality?

Retail Sales Rise, Rates Surge

Are we finally breaking out from a multi-year low?  Rates have been manipulated by government and Federal Reserve actions for more than a decade now.  Have we finally reached a bottom?

It seems that we are in an intermediate term move higher.  Time to be long interest rates - short goverment bonds.

The long term stock market prognosis remains negative however.  Should the stock market turn south, the flight to quality will again push interest rates lower, perhaps down to test the 2% level on the 10 year.  One can never predict with certainty.

Rates have been historically low, even though the credit quality of the US Government is suspect at best.  I have been short bonds now for more than a year, primarily using TBT for most clients, futures for more aggressive clients.  We are certain to again test 4% and I believe, break through with a vengence.

The last time we tested 4%, we broke though but then sold off with a vengence.  It must have been a Fed target rate which caused them to buy Treasuries aggressively.  Rates plummeted to 2.4% from 4.1%.  What incredible volatility we have witnessed in rates (10 year).  But markets are interesting in that they test support and resistance level, then do what is required to bust through.

We did not break new levels on the low end and have established credible support.  10 year rates will now blow though 4%.  It's the Trendsetter Slingshot Effect.  They pull levels down lower and when the rubber band is released, it pushes prices (rates in this case) through tough resistance.

I hope for some backing and filling here.  Building a channel would be nice, But I'd say it's time to be aggressively short on Treasuries.  Sell bonds.

What effect will sharply rising rates have on stocks?  Write me at to get my next stock report.

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