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A Picture Of Treasury Yields Is Worth One Word: DEFLATION
As the year 2007 rolled into 2008, the mainstream financial experts were certain of one thing (if you don't count death and taxes): Inflation would take the U.S. economy by storm and trigger an across-the-board flight out of the rate-sensitive bond market, as the following news items remind us:
- "Inflation May Cause US Bond yields to spike… It's like the 70's when Ford addressed the nation with his 'Whip Inflation Now' speech… and 10-year yields soared." -- December 3, 2007 Bloomberg
- "We're in a period of a commodity bull market and inflation. I wouldn't buy government long bonds. We'll be going down for years to come. Commodities are telling you to sell treasuries. Inflation is everywhere." -- December 5, 2007 International Herald Tribune
- "Inflation is dead only if you have the luxury of not needing to drive anywhere, heat your home, or eat." -- January 30 CNN.com.
We at Elliott Wave International, on the other hand, begged to differ at precisely the same time period.
While the usual pundits were hammering the last nail in the long-bond’s coffin, the January 2008 Elliott Wave Financial Forecast was gearing up for the market’s extraordinary rebirth. As the following chart from the January issue shows, our analysts foresaw that deflation -- not the widely anticipated inflation -- would take the price of every asset class -- including the 30-year Treasury bond yields -- DOWN.
Flash ahead to today. The much expected-repeat of a 1970’s-like inflation never came. Quite the opposite: A deflationary collapse in all asset classes from corporate debt to commodities, retail to real estate, and manufacturing to the stock market.
And -- On December 1, the yield on the 30-year T-bond plunged to an all-time historic low as a nervous public takes cover in the “last safe hiding place.” Here, the just published December 2008 Elliott Wave Financial Forecast presents the following updated version of the original chart from January.
In the end, one thing remains clear: While the usual suspects saw the Federal Reserve reflating the U.S. economy via bailouts and rate cuts -- the Treasury bond market foretold the deflationary story unfolding now.
Find out what picture the bond market is painting. Act now.