When Bob Prechter published his best-seller Conquer the Crash, he divided the book into two parts: 1) What investors should expect, and 2) How to prepare for it. One of the "prepare" chapters was, Should You Rely on Government to Protect You? Consider these quotes:
"If [governments] leap unwisely into bailout schemes, they will risk damaging the integrity of their own debt, triggering a fall in its price. Either way…deflation will put the brakes on their actions."
"Don't rely on your central bank, either. Ultimately, it is not in control of your country's stock market, bond market or interest rates. It mostly reacts to market forces."
Mind you, that was in 2002. Jump ahead to 2008 and early 2009 -- we've seen the gargantuan size of the U.S. government's bailout schemes, and watched the Federal Reserve's unprecedented steps to keep interest rates low.
Clearly the time had come for Prechter to focus again on government debt. Here's his analysis from the February 2009 issue of The Elliott Wave Theorist:
"Even U.S. Treasuries cannot hold up forever, particularly given the drunken-sailor approach to fiscal management that Congress has practiced over the past century and which has accelerated madly in the past eight years and even more outrageously since last September....At some point, Uncle Sam’s credit rating will begin to slip.
"What will happen when creditors begin to smell default wafting on the wind from the intellectual, moral and political swamp of Washington, D.C.? They will demand more interest....As T-bond yields go up, prices fall, and if investors rush to sell other assets to receive high yields, other investment prices will fall.
"When might a reversal begin? One clue that any aged trend is ending is evidence of a very strong belief that it will continue....I am entertaining the idea that...T-bonds might be peaking...right about now."
When Prechter published this February forecast, 30-year Treasury yields were around 3.5%. In March, the Federal Reserve announced its plan to purchase $300 BILLION of longer-dated Treasuries, in an effort to drive rates lower. Yet those rates have gone higher ever since -- they peaked above 5% on June 10, less than one week ago.
In that same February 2009 issue of the Theorist, Prechter closed the stock market "short" sale recommendation he had made in July 2007; it covered a total of 19 months and 800 S&P points. It was also seven trading days before the S&P 500 began its 39% rally.
The June issue of Prechter's Theorist is online now, with all-new forecasts for the stock market, the economy, interest rates, crude oil, plus an in-depth analysis of the U.S. Dollar. (This "double-bonus issue also includes a one-hour video of charts and commentary from Prechter himself.) If you want the best available opportunity to read tomorrow's news today, there really is no better place to begin.