Why The Experts STILL Have Interest Rates Wrong

July 6, 2016

Since early 2014, when 30-year T-Bonds were yielding close to 4%, Rick’s Picks has been confidently predicting rates would ultimately fall to at least 1.64%.  The technical basis for this forecast is shown in the accompanying chart (see inset). It went sharply against a consensus that includes nearly every economist, bankster and pundit who has been quoted on the subject. It has also flouted the publicly stated opinions of such heavyweights as Bill Gross, Paul Krugman, George Soros and some Federal Reserve governors.  Through it all, only someone with a deflationist perspective could have seen the relentless decline in rates that was yet to come. We doubt the inflationists will have learned much, however, since they still seem to be expecting long-term rates to reverse and start moving sharply higher “any day now.”  There are some exceptions, but even the few who disagree say rates are likely to “stay low” for a while, rather than continue to fall as we expect.

It’s easy to see why they have clung to this idea, since long-term rates have already fallen from a high of 15% in 1981 to a recent, record low of around 2.13%.  Simple arithmetic says that they cannot fall much farther. However, from an investment standpoint, because bond prices vary inversely with yields, and because long-term bonds are very leveraged to small changes in long-term rates, there remains substantial capital gains potential if the 30-year should hit 1.64%. We have made this point before many times — not only in Rick’s Picks, but in interviews available online with BBC’s Max Keiser, Kenneth Ameduri at CrushTheStreet, USA Watchdog’s Greg HunterThe Korelin Economic ReportBenzinga.com,  Urban Survival Network and Howe Street, to name a few.

From a technical standpoint based on the chart pattern shown,  the steep decline over the last two weeks has made the 1.639% target even more likely to be achieved. Moreover, because 2015’s powerful but relatively fleeting bounce in rates began almost precisely from the pink line, a ‘secondary Hidden Pivot’ support at 2.223%, odds are strong not only that 1.639% will represent an important bottom, but that the bottom will be precise.  With this week’s decisive breach of the 2.223%, the formerly supportive pivot has become resistance, implying it can be shorted ‘mechanically’ using our proprietary rules governing this type of entry. The opportunity would be at least a few weeks off, but as always, you can tune to the chat room for further guidance in real time. One final note: There is an additional downside target derived from a pattern of even larger degree that suggests a bounce could also come from 1.683%. If this were to happen it would imply a possible final low at 0.624% (!) that would challenge even the hard-core deflationist to imagine what kind of economic disaster might accompany it. Visit our 24/7 chat room and share timely ideas and real-time results with great traders from around the world. Click on the link for a free trial subscription.

Peru became the world’s largest producer of silver in 2012.