Bonds: New All-Time Lows

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Six weeks ago we looked at the unsustainable relationship between interest rates, inflation, oil and gas prices and stock prices. A few of the charts from Bonds: More Turmoil Ahead turned out to be quite prescient.

We expected the 10Y, then at 1.85%, to reach and drop below its all-time lows at 1.34%. It did so yesterday.We also forecast oil and gas, then at 59 and 1.65 respectively, to drop to at least 51.62 and 1.42. CL is currently at 49.66 and RB reached as low as 1.43.We suggested that VIX, then at 12.8, was due for a nice bounce with targets ranging from 16.97 to 34.97. Yesterday, it reached 30.25. We looked for the Dow, then at 28823, to drop back and test its SMA200, then at 26833.  Yesterday, it slipped slightly below its (now higher) SMA200 and reached 26997.And, we looked for S&P futures, then at 3272, to test 3336 before reversing to 3190 and, if the absence of a bounce, to drop to 3076.  They climbed to 3397 before finally reversing and reached 3091 yesterday.The key to the accuracy of all these forecasts and others was the observation that oil and gas prices were not compatible with the then-current interest rates and would need to fall sharply in order to maintain an accommodative monetary policy.

CPI came in on target the following morning, and the divergences are in the process of being “ironed out.”  Our long-term forecast and cycle study for TNX has more than proved its worth.  What is it saying now that rates have dropped to all-time lows?

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