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Tuesday, June 18, 2013

I'm afraid the bond market is telling us something big

As I said before, the bond market is the actual driving force behind the financial market, which is much much bigger than the stock market. The direction of the bond market will really determine where the overall market has to go. If you are watching the bond market, you may notice that in the past 2 weeks or so, the long-term government bond yield has suddenly moved up very quickly, from below 2% to 2.2% for the 10-year Treasury bonds. This is a huge move for bonds in such a short timeframe! I'm afraid the bond market is trying to tell us that something big may be coming. The bond market has enjoyed an over 30 years bull run, which has definitely ended by now. Dose the recent sudden mini-crash of the bonds mean the turning point has finally come? I don't know but I think this is likely the time period that bulls and bears are fighting to take a control but sooner or later, the bears will prevail to push down the bonds, leading to substantially higher interest rates. This is likely a very volatile period with quite some turmoils. Taking into consideration almost all the technical indicators flashing a warning sign for the top of the market, I just don't feel good about the current situation. I'm afraid the final moment is probably fast approaching to trigger a significant correction for the stock market in the next few months. Here is what I'm doing right now for my own 401K account: all my new contributions will go to cash with the money market fund. I also exchanged half of my equity funds into the money market fund to raise my cash position, waiting for a much better opportunity to re-enter the equity funds. I don't want to see my good profits from those equity funds to vanish with the correcting overall market. I may be still early but I feel safer this way.

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