I'm settling back down to work in cool, green Minnesota after winter and spring in Mexico and Arizona. In late March I discussed the 2CS which made a low of 49 on the March 14 in that measure of bearish fear with SPX at a close of 1563. SPX made two moves down to its 50 day moving average in late March and again in late April before zooming up to a close of 1669 and nearly a double bottom in fear at 2CS 51 in late May. In a month SPX gave back all the gains from mid March, and most of it in four rough days.
The high on Thursday (June 27) and today (July 1) was back at the 50 moving average fom underneath. At the June low the 2CS went as high as 110 which is typically enough fear to energize a rally. I suspect there is more down to do.
I was asked my opinion at SI on the Kondratieff Wave after someone posted that the wave can't yet have bottomed since US interest rates are so low. This is my take:
"Except for Treasury rates, the Kwave "winter" had all ended by 2003. The transition began in 1998/99 when Paul Krugman wrote his first "neo-depression" book and when a briiliant trader friend started buying hog futures calls as hogs fell to 1919 prices!
The Kwave is all about crude goods/commodity prices, and, in a free market, interest rates roughly parallel commodity prices trends.The FED basically took over control of interest rates ahead of the infamous 1/1/2000 computer non-snafu, kicked control up a notch after 9/11, and pumped away in 2002 and mostly ever since excepting 2005-06. Absent the FED, rates would have bottomed normally in 2002/03. This same political goose cooked from 1942-52 all the while the FED "pegged" short rates at 0.5% and the long bond rate at 2.5%. (There was a late May ZeroHedge article on this 1940's history which is worth a glance via a search engine.) Interest rates did not really break free permanently until after the severe 1957-58 recession, but most commodities had made final lows by 1949.
I think 2008-whenever (2013/14) is merely a mid-course correction in a long term Kwave commodity bull market phase much as 1987-93 was a mid-course correction in a long term stock bull market. Interest rates, IMO, are immaterial to an analysis of the Kwave at this point in history. They will catch up one of these years when the FED loses control as they did in the 50's and 60's. Of course I reserve the right to be wrong."
Despite these remarks, it's still possible that rates can fall further. Even though I had steadily shortened bond durations in my portfolio for the past several years, I have bought a small, leveraged position in EDV which is a zero coupon long Treasury bond fund. My reasoning is similar to an analysis today by John Hussman. http://hussmanfunds.com/wmc/wmc130701.htm
"The bottom line is this. Short-term interest rates will be pegged at zero for quite a long time, because raising them even slightly would require not just tapering, but a massive reduction in the Fed’s balance sheet. The securities that compete most closely with default-free short-term money is default-free long-term money, which is why I view Treasury bonds as increasingly compelling as interest rates rise, particularly in a tepid economy with no material inflation pressures. Security types that normally carry significant risk premiums (like stocks and corporate bonds) have already seen all of the likely benefits of QE, and any return to historically reasonable risk premiums is likely to batter these securities.
So while I view a reduction in the pace of the Federal Reserve’s quantitative easing purchases as likely in the months ahead, regardless of the course of the economy, an actual reduction in the amount of those holdings seems unlikely for years. As a result, short-term interest rates are likely to be pegged near zero for a very long time, and the lack of yield on short-term default-free investment options is likely to support demand for the most comparable default-free options – namely medium and long-term Treasury debt. I don’t believe that the same argument extends well to securities such as stocks or corporate bonds that have traditionally been priced to reflect significant risk premiums, and where we estimate present risk premiums to be extraordinarily thin.
In my view, much of the recent selling has been based on the idea that the 30-year secular bull market in bonds is over. The more relevant issue is that there are no material upward pressures on short-rates, inflation, or economic growth here, the difference in yield between 10-year Treasuries and 3-month Treasury bills is already greater than the long-term norm of 1.4%, and the potential for credit shocks remains material. In that environment, I believe the main consideration is to have the flexibility to extend durations on spikes in yields and reduce durations when yields are depressed."