At the beginning of saying, and briefly, from the beginning, my expectations are to see the bond market rise until 2023, and interest rates decline during the year 2023.
When I first made this prediction last year, many (even some of my clients) thought I was crazy. With rates at 5%, most of them were pretty sure that we would easily pass this point, and move smoothly towards 6% or higher. Of course, the most certain reason for this expectation is the general stance of the Federal Reserve to keep raising interest rates.
However, no matter how many times I post historical examples of how the Fed fails to control the market interest rate (it simply follows the market), people usually argue with me about how wrong I was. However, all one has to do is just look at a simple chart and they will see that my hypothesis is 100% sound, as the Federal Reserve always follows the market. And this time will be no different.
As we now know, although the Fed constantly stresses how it intends to raise interest rates, the bond market bottomed out in October last year – as we expected – and has been rising ever since. However, the Federal Reserve continued to raise interest rates with the market not really paying attention. This has certainly left many investors confused by the movement of the bond market. However, as I said before, we expected this price action.
Look at the bond market
Again, if you’ve read my public articles over the past six months, you’ll know that we’ve noticed most of the U-turns in the bond market. While it bottomed out in October just below my initial forecast, the rally I was anticipating is clearly starting in Q4 2022. Then I told you to expect a market pullback in December from the 109-110 area, and I gave you support The ideal I expected is in the area of 98.50 in TLT, from which I expected to start the next phase of TLT’s rise. As we know now, TLT peaked at 109.68 in December, bottomed out at 98.88 in early March, and has since returned towards the December highs.
At this point in time, the market is once again challenging those highs. And if we see a sustained break of those highs over the next week or two, then I think we are heading towards the target I gave you several months ago in the 120-125 region.
In the bigger picture, I think a rally to 120-125 would be just the first wave in a three wave rally that could take us back to the 140-155 region over the next year or two. After moving into the 120-125 area, I would expect a long multi-month pullback/consolidation to form before the next higher leg kicks in.
But this is where my warning comes in. And if we see this rally develop over the next year or two as I outlined above, it will likely be the beginning of a bond market meltdown as we look forward to the 2024-2025 time frame. Also, this is likely to go along with a major bear market move in the stock market as well. So, obviously, as we look forward to the second half of this decade, things haven’t set up very well for investors.
The hardest bear market
As I’ve also made clear in many previous articles, now is the time to prepare for what will likely be the toughest bear market we’ve seen since the Great Depression. I’ve outlined a number of action elements in previous articles, including identifying global market segments that may offer opportunities during a US bear market, cash raising (as your money will increase in relative value relative to stocks and bonds during that time frame), and research about the safest banks you can find to hold that money.
