• 10 hours Bitcoin Lives Up To Its Safe Haven Status In A Big Way
  • 13 hours 14 Million People Will Lose Unemployment Benefits On December 31st
  • 2 days Why 12 Million American Millionaires Isn’t Good News
  • 3 days Big Oil Is Paying The Price For Investing In Renewables
  • 4 days The Banking Industry’s $35 Billion Gravy Train Could Disappear
  • 5 days Did Amazon Just Democratize Prescription Drugs?
  • 7 days The Private Space Race Just Got Very Real
  • 8 days Short Sellers Are Willing Big In This Turbulent Market
  • 10 days SpaceX Gets Go-Ahead To Send Humans Into Space
  • 10 days Saudi Arabia Lost $27 Billion In Oil Crash
  • 11 days China’s Big Tech Takes A Hit As Regulators Crack Down
  • 12 days Black Friday Could Be Retailers’ Only Hope
  • 13 days Why You Should Not Dump Your Stay At Home Stocks Just Yet
  • 14 days The Real Reason Why Uber And Lyft Stocks Have Soared Nearly 50%
  • 16 days Bitcoin Heads Towards $16,000 And No One’s Cashing In
  • 17 days Elon Musk’s $250 Tesla Tequila Is Already Sold Out
  • 18 days Will The San Francisco Wealth Tax Spark An Exodus Of The Rich?
  • 19 days The Fin-Tech IPO Of The Century Just Got Crushed
  • 20 days UK Bookies Report Largest-Ever Political Bet Ahead Of Election Results
  • 21 days Better Safe Than Sorry: 5 Alternative Investment Plays
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Bond Bull Over or The Start of The Final Blow Off Top?

Over a Trillion dollars has been vaporized in the bond market in just one week. The phrase "blood bath" is an understatement as the widows and orphans have been routed. This isn't supposed to happen in the the bond market. So is the great 33 year bond bull finally over and the deluge that we knew would ultimately come upon us? Not so fast chipmunk, is my reply and this is why. All great bull markets go through three complete phases. Phase I is the accumulation or stealth phase, phase II is the mark-up phase which lasts the longest and phase III is the blow off or mania phase. The NASDAQ and the oil bull markets exhibit provide us clean examples of these three phases in their 10 year bull runs which ended in crashes. Phase III is characterized by violent and deep yet short term corrections which shakeout all but the strongest hands. That is what the government bond market is undergoing in this recent violent move. First let's review those two bull markets in the NASDAQ and oil.

NASDAQ 1992-2000 Chart
Larger Image

Light Crude Oil 1999-2009 Chart
Larger Image

Both of these bull markets lasted about 10 years and went through all three psychological phases. The critical thing to note is the violent short term correction that these indexes underwent between phase II and III. It served to clear the decks and set itself up for the final blow off phase. Note the NASDAQ corrected 27% in 4 months in 1998 and the oil market corrected 38% in the 6 months after August 2006. These violent corrections are typical of early mania phase III markets after which markets go into mania blow off peaks.


Bond Market correction in phase III or new bear market?

The violent sell off we have just witnessed in treasuries is simply normal action setting up for a final mania blow off in bonds. Obviously this would be driven by an economic contraction resulting in a further dive in interest rates. Interest rates would drop because economic activity cannot support higher rates. This seems counter intuitive with expectations of Trump infrastructure driven spending, however this is what I believe the chart of the long term government bond is telling us. Keep in mind that draining the swamp and ridding Wall Street of corruption could pull those rotten props out from under what has been artificially elevating the economy. After a honeymoon rally in stocks and further pressure in bonds the prevailing trend should continue. Forecast ahead: After this shake out is over, higher bond prices.

US Bond Bull Market 1978-2016 Monthly Chart
Larger Image

30-Year US Treasury 3-Year Chart
Larger Image

 

Back to homepage

Leave a comment

Leave a comment