MARKETPLACE YIELDS: THE RIGHT OF WAY © Leo Haviland December 16, 2013

The Federal Reserve Board, other central banks, and numerous marketplace promoters may have encouraged significant complacency in many trading arenas. However, they of course have not abolished marketplace risk.

In several major government note marketplaces- and despite ongoing interest rate repression by the Fed, the ECB, and others- long term yields have floated higher since summer 2012. Interest rates began ascents in America, Germany, and China. Major bear trends are underway and intertwined in these three countries. Even Japan since spring 2013 has shown signs of higher rates, although its enormous bond buying program may keep its 10 year JGB low.

In any case, higher inflation helps to boost interest rates. So keep in mind the determination of the Fed, the ECB, and the Bank of Japan to achieve around two percent inflation, as well as China’s long-running lax credit policies.

The Fed repeatedly tells audiences that inflation expectations are well-anchored at low levels. Rate increases should make observers wonder about the durability of this anchor, especially given the Fed’s long-running deluge of money printing.

History nevertheless displays that significant US government yield rises sometimes precede (“lead”) important American stock price bear moves. The sustained increase in US 10 year government note yields since July 2012 arguably is leading to a decline in the S+P 500 (admittedly this leading process is taking quite a long time). A decisive and sustained march in the 10 year UST through its three percent barrier probably will be bearish for the S+P 500 (and many other stock marketplaces). In addition, keep in mind the ongoing bear trends in emerging stock marketplaces “in general” and in the “overall” commodities marketplace that started in spring 2011.

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Marketplace Yields- the Right of Way (12-16-13)