Yamada Warns of Bearish Bond Market

Feb.28.10 | About: Vanguard Total (BND)

Uber-technician Louise Yamada is now warning that the secular bear market in equities is likely to be joined by one in bonds as well. In the video below, she talks with Bloomberg’s Pimm Fox about her view that bond yields are going to rise over time.

I find her analysis that secular cycles in the bond market are long – 30 years + – compelling. And given, the fact that this secular bull market in bonds has been going since 1981, when Paul Volcker was Fed Chairman, and that short-term rates are incredibly low, there isn’t a huge amount of upside here. Yamada says bond market bottoms reverse quickly, as the one in 1981 did. Ostensibly, this turbo-charged the secular bull market in equities that started right afterward. She says, however, that bond market tops take 2 to 14 years to reverse trend.

Bottom line: bond market tops are usually associated with economic depression. And, unlike in bottoms when inflation is pushed ahead by high capacity utilization, deflation is the order of the day in bottoms. And that means low rates can last for quite a long time. Just ask the Japanese.

By the way, I don’t buy her comments about a bond strike by the Chinese. See my post here as to why. Otherwise, her comments are quite interesting.