Anyways...
1.- REVISION
Again, this is a follow-up post to my previous one entitled Ah Hoye, Look At Those Bonds!. If you have not read it, I encourage you to review it before reading tonight's post.
In summary, however, I wrote about my belief that we should see US interest rates come down into 2010 as the bear market resumes its course and investors flee to 'safer' assets (I probably don't have to explain why I say 'safer' in between quotation marks.) When the markets finally bottom and the economy begins to recover, I expect rates to go substantially higher.
2.- INTEREST RATE CYCLE
I'm posting the interest rate chart from my previous post for ease of use.
As you can see, the model Bob Hoye happens to be using is the 1930's style depression. To date, his calls on everything from oil prices, equities, etc have been absolutely dead on...I mean DEAD on, and I only expect his projections with respect to interest rates to be equally right.
To further support his conjecture, I'd like to present an interesting cycle in the 2-year US treasury yield as seen in the chart below.
As you can see, over the last 15 years we've seen a 5 - 6 year cycle in interest rates. Projecting out, one would expect a peak around mid-2011 at the earliest and mid-2012 at the latest. Now, some of you may be saying to yourself - "Well, 15 years or two cycles is not a really long time to base, or even support, this hypothesis". Way ahead of you...
I went back and looked up historical data on the 2-year yield and came up with the following chart:
Pretty much the same periodicity isn't it? Again, what we see is a recurring 5 - 6 year cycle in interest rates going as far back as the 1980's.
3.- THE EGO AND CRASH FORECASTS
Don't worry I'm not making any crash forecasts here. I'll leave that to other websites...ahem.
All bear markets have been accompanied by crash forecasts. In fact, coming into ANY calendar year I'm sure you will find a plethora of websites calling for crashes if you Google "Stock Market Crash 20XX".
There is a particular blogger who is now calling for a crash in a few months and I want to comment on it. Incidentally, the only reason I am commenting on it is because this is my personal blog - I have no intention of discussing it outside this medium.
My beef with people who love to forecast crashes (and ultimately take credit for it) is that it is simply done out of personal ego - to be right in other words. I get irritated by it because in this day in age where there is such a need to help others, all this person can think about is being right.
Now, this being said, I strongly believe that a crash is absolutely possible given the current environment. And by 'crash' I don't mean a market that drops precipitously month after month (though this IS going to happen in my opinion). I mean a one-day '87 or 9/11 stock market crash.
I have a forecasting technique that has been remarkably dead on when it comes to market direction over the past 2 years and this particular model is calling for a large sell off beginning now and lasting into September. If there ever was a chance for a one-day crash event to occur it would be around mid-August. I can't explain why but that's what the information I have tells me.
So if you are going to listen to these egocentrics and their market crash calls please be vigilant around this time frame and don't lever in thinking you are going to trade well through it. That is a recipe for financial disaster.
