Higher Treasury rates have a lot of people upset and worried. That is, worried because they think the recent bailouts combined with the other out of control US spending puts the US balance sheet in jeopardy.
In past bear markets, as short-term rates declined, and long-term rates increased, it was a sign of future growth... and looking around the corner, another bull market for stocks down the road.
Also, in past bear markets, the savy bulls would look for pessimism to reach such an extreme level that stocks would bottom out because the general mood was so negative that there was no one left to sell stocks.
Will this cycle follow the same pattern? The chart above is a fairly good sign that longer-term rates have bottomed and are headed higher. And, yikes, the news and mood doesn't seem like it could be worse. Also, Fed Funds are at 1.5% and foreign central banks have finally seen the light and are lowing rates to stimulate growth.
So do we have the ingredients we need to at least start to look for signs that the worst is near? We aren't talking about a turnaround soon, but around the corner. Maybe late 2009?
I'm having trouble wrapping this up. The point is, these higher rates are usually a good sign for people willing to look out into the future, as long as the rates don't climb too far too fast. But this time?
These markets followed the classic, textbook, topping pattern. First rates peaked, then stocks, then commodities. And now we wait for the bottom pattern. It looks to me as though the first step is complete with rates bottoming, and now we wait to see when stocks bottom. Based on the oversold weekly RSI for stocks, it looks to me like stocks will retest at least once before the bottom is in.
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