The multi-decade bull market in US bonds is clearly over and with it comes an entirely new set of issues that the US government is going to eventually be forced to come to grips with. A monumental federal debt requires LOW interest rates to deal with the mathematics that can quickly make it completely unmanageable. Those days are now behind us.
Take a look at the following chart and you will see what I mean. I had expected that the long bond would find some buying support emerge near the intersection of TWO CRITICAL REGIONS. The first of these was a band of horizontal chart support near the 135 region. The second just so happens to be that region is also the 50% Fibonacci Retracement level of the rally off the secondary low in early 2011 to the peak last fall.
Guess what? The bond market collapsed through that level as if it did not even exist. Next stop looks to be the 61.8% Fibonacci retracement level down near 131 now that the bonds have CLOSED BELOW the 200 week moving average.
Safe havens bonds are now firmly out of favor with the view that tapering of the bond buying program of the Fed (QE4) will now begin as early as September of this year. Rising interest rates are working to bring the US Dollar into increasing favor among global investors as most countries out there with major currencies are no where near to a period of rising interest rates.
It does appear that we are going to be entering a period of rising stocks, rising interest rates and a rising Dollar, all at the same time.
Pretty remarkable isn't it considering that trillions of those self-same dollars have been created by the Fed over the last few years? It just goes to show that demand for the US currency is phenomenal mainly because demand for the other major currencies is rotten!
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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