08Feb10:12 amEST

The Mother of All Bear Traps

In the wake of a four decade bear market for rates on the 10-Year Note (and bull market in prices, of course), it is only fitting that the final plunge in rates after The Fed's historical March 2020 intervention would prove to be the mother of all bear traps to usher in a new era of higher rates. 

On the updated monthly chart, spanning decades dating back to the end of the 1966-1982 inflation era (and bear market in equities), we can see the Index for rates on the 10-Year begin its epic downtrend. The seemingly endless downtrend likely would not go out without a bang, given the size and scope of the trend, and I believe we saw just that with that final plunge nearly two years ago.  

But with inflationary sticky and far more persistent than The Fed and most pundits have expected, rates have made technical progress higher and are knocking on the door at 2% now (roughly 20 on the Index chart, below). Eventually, rates on the 10-Year need to clear 3.3% to confirm the generational bear trap once and for all. However, the pattern is far enough along at this point where I am willing to discuss it in serious terms. 

Almost every day, all day, on financial television and social media I see even seasoned market veterans cavalierly dismiss the idea that rates can move substantially higher from here especially in a short period of time, and thus they view growth stocks as being cheap or at least rather close to a major bottom. 

But that overlooks the historically propensity of markets which have sprung major traps--From failed moves in one direction often come aggressive move the other way.

In other words, the accleration of higher rates has not even begun, in my view. If that is the case, then arguing that FB is cheap here is severely misguided, at best. And catastrophic, at worst. 

A new trend is a new trend. And I think you will find rates on the 10-Year will be back in the 3-4% range much more quickly than many expect, if not closer to 5%. 

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