10/29/10: We have finally made it to the US mid-term congressional elections (to be held this coming Tues. Nov. 2nd). The market has priced in a Rep. party victory in the House, the question now remains will they take the Senate too. Stocks are generally happy (with the notable exception of Japan) and look to continue their recent rally. Commodities in general are strong and until we see a discernible bottom in the dollar, that trend has no reason to abate. It has been quite a run since Aug. (for example, CRI's OnlyDoubles has had 3 doubles in the month of October alone!) but there are early warning signs of the end of this Euphoria. CRI's DI index is looking very toppy and bond markets in Europe have started to break down (please refer to this week's CTS Spotlight). Should the US Fed's 'shock & awe' quantitative easing indeed work, then one might expect to see serious deterioration in bond prices which will then ultimately lead to a deterioration in equities. We are not at that stage yet, so enjoy the top of the market while it lasts.
European Interest Rates:
While growth within the US is still in question, there are clear signs that the bond market is starting to price growth back into the equation in other parts of the world. Specifically today, we look at two big European issuers of debt - Germany and Britan. Both bond markets are clearly in long term bull markets (lower charts) but there are signs of the bears taking control in the short/medium term (upper charts). 50% retracements will bring both markets back into long term support areas so those fixed income investors out there, be patient and wait for yields to raise a little more before locking in.
Historically low 10 year US treasuries?
Every once is a while I like to look at really long term charts just to put where we currently are in historical context. Here then is a 200 year chart of US Treasury yields from back in 2002. The most recent chart hasn't changed that much other than yields are still falling.
While one can draw many different conclusions about government yields and the development of a country, there are some basic ideas we can take away from the long term trends.
1. The combination of the 'baby-boomer' generational influences coupled with a peak in world socialism pushed inflationary pressures and thus yields to historically anomalous levels.
2. The simultaneous unwinding of both of these significant market forces may bring the market right back to where it started. Baby-boomers's demand for hard/fixed-income assets shall dominate while current 'emerging market' politics/economics have all but crushed the gains of the international socialist movement. Trade union, what trade union?
The more things change....the more they stay exactly the same....
That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com
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