Market Interest Rates are Self-regulating

By on May 3, 2006

There are approximately 50 archived newsletters that will be attached to this blog daily.

The following was originally posted on:

August 9, 1996

The market see-sawed this week which is to be expected following it’s huge runup over the past few weeks. The DJIA at 5681 is within 2% of its old high of 5778. The NASDAQ composite is 9% off it’s recent high. This is quite a divergence and some would say it’s a sign of danger, but that could be a long time off. The market made a significant bottom in July and should slowly make progress from here.

Many analysts have turned bearish including Byron Wien, Gail Dudack, Doug Fabian and Elaine Garzarelli. This is a positive for the market as their minions have already cut back on their stock holdings. There is a concern by some over slowing corporate cash flows, a decrease in mutual fund inflows and a worsening technical picture. In contrast, Mr. Wien expects a stronger economy and rising interest rates with it. Recent evidence would suggest otherwise as consumer spending has become weaker after the rise in interest rates experienced in the first half of the year. Market rates have become a self regulating mechanism. Market participants are very watchful for any signs of inflation and will cut down on purchases of bonds which lowers their prices, driving yields up. This eventually slows the economy, reducing inflation expectations, and causing investors to bid bonds up, resulting in lower rates.

Again, expect the market to continue it’s forward march. If the market drops significantly the Tactical Timing System will generate a buy signal. For now the recommended aggressive allocation is 90% stocks, 10% cash. The recommended conservative allocation is 70% stocks, 30% cash. Of the stock portion, 20-40% should be foreign with the balance in U.S. equities.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>