🧐 ProPicks AI October update is out now! See which stocks made the listPick Stocks with AI

Rates Should Continue to Fall, Eventually Setting Up a Bond Market Crash

Published 2023-04-11, 12:43 a/m
TLT
-

If you have been reading my public articles on the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) over the last half a year, then you would know of my expectation to see the bond market rally into 2023, and rates falling into 2023.

When I first put this expectation out last year, many (even some of my own clients) thought I was simply crazy. With rates skyrocketing towards 5%, most were quite certain that we would easily eclipse that point, and move well towards 6% and even higher. And, of course, the reason most maintained that expectation was due to the Fed’s public position of continuing to raise rates.

Yet, no matter how often I post historical examples of how the Fed does not control the market rate of interest (it simply follows the market), the more people argue with me about how I am wrong. Yet, all one has to do is simply look at a simple chart and they will see that my premise is 100% sound, as the Fed ALWAYS follows the market. And, this time will be no different.

As we now know, despite the Fed continually stressing how it intended to raise rates, the bond market bottomed in October of last year – as we expected - and has been rallying ever since. Yet, the Fed has continued to raise rates with the market not really caring. This has certainly left many investors quite confused by the bond market action. Yet, as I said before, we expected this price action.

Again, if you had been reading my public articles over the last 6 months, you would know that we caught most of the turns in the bond market. While it bottomed in October a little lower than my initial expectations, the rally I had been expecting had clearly begun in the last quarter of 2022. I then told you to expect a pullback in the market in December from the 109-110 region, and provided you the ideal support I expected to hold in the 98.50 region in TLT, from which I expected we would begin the next phase of the TLT rally. As we now know, TLT topped at 109.68 in December, bottomed at 98.88 in early March, and has since rallied back toward the December highs.

At this point in time, the market is again challenging those highs. And, should we see a sustained breakout of those highs over the coming week or two, then I believe we are heading to the target I provided to you many months ago in the 120-125 region.

In the bigger picture, I believe the rally to 120-125 will just be a first wave in a 3-wave rally which can take us back up to the 140-155 region over the coming year or two. After the move to the 120-125 region, I would expect a long pullback/consolidation to take shape over many months before the next leg higher will begin.

But, this is where my warning will come. Should we see this rally develop over the coming year or two as I have outlined above, then it will likely set up the start of a bond market crash as we look out toward the 2024-2025 time frame. This potentially aligns with a major bear market move in the stock market as well. So, clearly, as we look out towards the 2nd half of this decade, things are not setting up terribly well for investors.

As I have also outlined in many past articles, now is the time you want to be preparing for what will likely be the most difficult bear market we have seen since the Great Depression. I have outlined a number of action items in prior articles, including identifying those segments of world markets which may provide opportunities during the bear market in the United States, raising cash (as your cash will rise in relative value compared to stocks and bonds during that time frame), as well as seeking out the safest banks you can find to house that money.

I would strongly urge you to read the public articles we have published on banks, as well as to review our methodology in testing banks so you may apply it for your own due diligence on the institutions that currently house your money.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.