End of a Bull Market -- MrSwing

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End of a Bull Market
Dec 01, 2008

Carl Futia

CarlFutia.com
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Here is a scan of part of the long term bond market forecast I published in late 1982. The bar chart near the bottom of the page shows the yearly ranges of corporate bond prices over the rising half of two very long term bond market cycles. The first of these cycles began from the 1857 panic low in bond prices and the second from the bond price low in 1920 following the post-World War I inflation. These cycles were then plotted against a time axis which began in 1981, the low point in bond prices which was reached after the great inflation in the U.S. during the 1970's and early 1980's.

Based on these two historical precedents I predicted in 1982 that the bond market would rally and long term interest rates would drop for the next 25-30 years. Now in 2008 we are 27 years into this bull market. As I write this the yield on the 30 year treasury bond is 3.35%, the lowest it has been since 1981 when it had reached a high of 15.31%. The yield on the 1o year treasury note is now 2.85%, also the lowest reading since 1981 when it had reached a high of 15.96%.

I think the drop in yields and the bull market in bond prices which began in 1981 is just about over. We may see the 30 year bond drop a little more, say to 3.00% and the 10 year note to 2.50%. But looking beyond the next six months I think we shall see the start of along term bear market in bonds. I suspect that it will accompany a persistent attempt by governments around the world to inflate themselves out of the long term pension and health care obligations they have assumed toward their older citizens.

Added later: In case you are wondering, this is the first time in 27 years that I have said that I thought that the long term trend in bond prices was about to turn downward.

by Carl Futia (CarlFutia.com)