Saturday, September 10, 2016

It is all about BONDS - spelling out the stock bear case (which is easy to do after the fact)

Interest rate on bonds.  That is what it is all about.  This time the bond market really reacted to the fear of rising interest rates, in spite of all the negative bonds in the world and all the officials all saying that is a good thing and they could do more of it.

I think the market knows negative rates is perverse.

All the commentators seemed to miss this.  I sure did.  Thursday was like ringing a bell:

I think fear of a rate hike built up in the stock market as evidenced by the market moving sideways.  Note the peak in the 30 year bond in early July.  This really signaled the start of the sideways motion in stocks.  When the bond price came down to its 50 day moving average, optimistic that it would hold, the market jumped up a bit but it was the beginning of the final sideways motion.  Stocks hit a final peak all time high on August 15 coinciding with the bond dropping through its 50 day moving average. Finally the bond tested resistance at its 50 day MA and failed to break through.  On September 6 the S&P tried but failed to make a new high.

The markets are telling the Fed they better not raise rates or this is what is going to happen.  If the markets don’t recover in the next two weeks I don’t see how the Fed can raise rates.  BUT politics.  It will be seen as a political move if they raise the Fed funds rate and it will be seen as a political move it they don’t.

So maybe they will just do what they actually want to do.

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