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Friday the 13th: Bad Luck Bonds (October 13, 2006) It is chillingly appropriate to look at a chart of the 30-year Treasury Yield Index (the so-called long bond) on Friday the 13th. Despite the widespread belief/hope/faith that interest rates will start falling, this chart says the opposite: long bond rates are in a new uptrend. 
Even a cursory glance at this chart reveals three critical technical points: 1. A very obvious double-bottom, which clearly marks the long-term low 2. A break above the declining trendline 3. An unmistakable new uptrend rising from May 2005 An astute reader sent me a link to the Guerite Advisors' Guerite Indicator which has accurately predicted every recession since 1960. Interestingly, this indicator began flashing "red" (high risk of recession) in May 2005--the same point at which the long bond transitioned from a multi-year downtrend into a new (and if history is any guide, multi-year) uptrend. Coincidence? I think not. Rising bond rates mean rising interest rates which means borrowing becomes more expensive. Rising rates are generally the death knell for equities (stocks) for the simple reason that when borrowing money costs more, consumers and businesses both spend less. Furthermore, as government borrowing costs rise, the government has to cut spending elsewhere or raise taxes to cover the higher interest payments. Either way, consumers and businesses--and thus stocks, which depends so heavily on rising profits and rising sales--all lose. And not just a little for a brief time, but big, and for many years. That's what this chart reveals; so which do you want to bet on? The "interest rates will drop" cheerleaders or the chart? For more on this subject and a wide array of other topics, please visit my weblog. 
copyright © 2006 Charles Hugh Smith. All rights reserved in all media. I would be honored if you linked this wEssay to your site, or printed a copy for your own use.
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