Rising Bond Yields are Making Life Difficult
This week could have been better, then it could have been worse. I note though, the Dow Jones in its BEV chart below, closed inside scoring position; BEV values between -0.01% to -4.99%, – less than 5% from its last BEV Zero / last all-time high.
The most interesting thing that happened this week, was the Treasury attempting to manipulate the yields for its long bonds down, back below 5% I expect. The bond market deciding to be difficult, the fix didn’t last a day. More on that below.
Going back to the Dow Jones in its BEV chart below, as always, when it closes inside scoring position (Red Rectangle), we must assume additional new all-time highs are pending, and I’ll leave it at that.
The last all-time high for the Dow Jones was two weeks ago, on August 5th. Its 93rd new all-time high since the Dow Jones entered into scoring position in November 2023. That has was almost three years ago. Three years is a long time for the Dow Jones to be advancing. So far, since November 15th of 2023, it has advanced from 34,991 to 54,349, up 19,358 points, an advance of 55.32%. How much more can reasonable people expect from the stock market, before something unfortunate happens?
Successful investors know no bullish trend goes on forever. This is what makes successful investors, successful; they sell before the market turns to the downside.
Looking at the Dow Jones in its daily bars below, last week and this week were a bit feeble. Not much of a follow through after the big advance of three weeks ago. Looking at this chart, two charts below, I ask myself a question; what’s next;
- a new all-time high,
- or a breach below the Dow Jones BEV -5% line?
I’m going to assume what is next, is a new all-time high, because the Dow Jones closed this week inside scoring position. I’m just being disciplined, as that is always the correct answer to what is coming next, when an index closes inside scoring position, with the Bear’s Eye View.
But I can also see where the latest Dow Jones all-time high, could be its last for a long time. I’ve noted for years now, how bond yields have been rising since August 2020, (Red Plot Below) though the financial markets so far have chosen to ignore this bear market in bonds. A bear market now on its seventh year. With the yields for the 20yr & 30yr T-bonds now over 5%, indifference to this established bear market in debt, is becoming ever more difficult.
This week, it seems the financial markets are beginning to choose * NOT * to ignore the bear market in bonds. If so, that isn’t good for the stock market.
Next week, if Dow Jones breaks below its BEV -5% line, in a dramatic fashion, say two big Dow Jones 2% days, don’t walk, but run from the stock market. I’m not prediction that will happen, most likely it won’t. But if that does happen, that is my advice. Remember; on Wall Street, they never ring a bell when it’s time to sell. Investors have to figure that out on their own, usually to their great loss.
In my table of BEV values for the major market indexes I follow, below, there were no BEV Zeros / no new all-time highs this week. That happens during a market advance. Sixteen of these indexes did close the week in closing position. As I said above, when an index closes in scoring position, new all-time highs should be assumed. So, on the face of it, I’m still bullish on the stock market. Not a raging bull on the market, but bullish nonetheless.
Look at the XAU in the tables above, and chart below, it moved up some eleven BEV point from Tuesday’s, to Friday’s close! This is huge. A three-day advance of 15.15%. From its bottom of the XAU’s correction on July 20th, it has advanced 43.37% in one month! I wouldn’t be surprised if the XAU was making new all-time highs before the end of August, or early September.
Gold and silver bullion are moving up briskly too! What is going on here? I can’t say anything with certainty, as I’m only a market enthusiast. But maybe, rising bond yields are beginning to drive dollars from the bond market, into precious metal assets. This has happened before, in the 1960s & the 1970s.
I saw the following CNBC news article. It’s an important bit of information for understanding what is going on behind the scenes.
Treasury doubles debt buybacks as Bessent moves to steady bond market
Then one day later:
Treasury yields wipe out decline following Bessent's intervention
So, what is going on behind the scenes? It can’t be ignored any more, the world is finally waking up to the fact that the “richest country in the world,” the United States, is having difficulties servicing its massive, and historic debts. And how much debt is that exactly?
Exactly, I don’t believe anyone really knows. The publicly announced US National Debt was $39.934 trillion dollars last week. But the total financial liabilities the Federal Government has, with what is called “unfunded liabilities,” is not known to me, and maybe not even by the Secretary of the Treasury, Bessant.
These are potential liabilities the US Government doesn’t carry on its books, so there is nothing to see. But under certain circumstances, for example; should former students of America’s “higher education system” rose up together, refusing to pay back their student loans, for the totally bogus “education” they received in exchange, * AND MADE IT STICK *, those trillions-of-dollars of student loans, would then become an unfunded liability problem for the Federal Government.
Because long ago, the Federal Government obligated itself to make good on those debts. Making student loans secure, low yielding debt, but attractive to public and private institutions, as their interest and principal payments were guaranteed by the full faith and credit of the United States of America.
Had Uncle Sam refused to do so, there would never have been a student loan program, financed with monetary inflation, from the Federal Reserve, and its banking system.
No student loan program? Wouldn’t that have that been a good thing to never have happened? Not that the colleges and universities, which became very rich from that flow of “liquidity” from the Federal Reserve, via the student loan program, would agree with that.
I have to believe there are many, many other former worthy causes out there, where Washington has pledged its balance sheet, to support this, or that noble program, that someday the taxpayers, and T-bond holders will regret.
For example, I’m thinking of Wall Street’s “Living Dead” of the 1980s. The Savings & Loan program that FDR, and his “New Deal” began in the 1930s to finance “home ownership.” Ultimately, these Savings & Loans died a lingering death during the Reagan Administration. One day, nothing to see. A year later, vast sums of money were flowing from the US Treasury to these “Zombi” Financial Institutions,” in a massive, and expensive, but failed effort to keep them alive.
The same was true for the sub-prime mortgage debacle, as will one day be for the Social Security System. Below are some articles Barron’s has written on Social Security; dates are Barron’s Issue dates.
Barron’s articles on Social Security from September 1936 told it as it was, and continues to be to this day. Why this was allowed to go on for ninety years, was because of the willingness of Washington’s political class, to allow the US National Debt to exceed $40 trillion dollars this week – doing so got them reelected.
There you have it; Federal programs at their core are political in nature, not economic. But they cost money, lots of money better spent elsewhere, by people who know how to provide actual services with the public’s money, not losses with compounding interest.
How much of America’s $40 trillion-dollar national debt, was money directed by politicians towards their political supporters, who only seem to know only how to squander the taxpayer’s money, as they enrich themselves. I think a lot, if not most of it.
Does this look like something big and bad will soon happen in the financial system and markets? Maybe. I’ve seen lots of stories like this over the years. Most come to nothing. That is why I’m more attuned to data on bond yields, and interest rates to see what is happening. Looking at what bond yields below did at this week’s close. Any anticipated spike in bond yields failed to happen, but they weren’t trending downwards either.
Barron’s Intermediate Grade Bond Yields below (Blue Plot) is an excellent harbinger of pending disaster in the market. These are corporate bonds, and when they spike above Best Grade Bond Yields (Red Plot), watch out, as something big & bad is on its way. They have done so since the Great Depression, in the chart below. Did intermediate bond yields spike this week? They did not, and that is a very good thing.
In the charts above, we see the bear market in bonds began years ago. Current bond yields are significantly higher than they were six years ago. This is what a bear market in bonds looks like.
There is an unknown threshold in T-bond yields in the chart above, where once breached, the financial markets will find themselves in serious trouble. As this threshold is unknown, I can only say it is there, not exactly where the there is. Long bond yields of over 6%, just might be the bond market’s invitation to Mr Bear, to clean house on Wall Street.
Should real problems come, and they will, we’ll know, as money flees the bond and stock markets, resulting in the above bond yields spiking upwards. I expect we’ll see gold & silver valuations spiking upward in sympathy, confirming Mr Bear is knocking at the door, demanding to be let in.
Looking at gold’s BEV chart below, all I can say is; what a pretty chart. We see the staggered decent from gold’s last all-time high from last January, to June. Then a month-long bottoming formation, within the black circle, and in the past two weeks, gold’s valuation has only spiked upward.
Will we see an advance, with none of the staggering we saw on gold’s decline? Just advancing prices from one week to the next, a correction recovery with no pull backs?
I’m all for that, but experience tells me that isn’t going to happen. So, I’m anticipating before gold makes its next new all-time high, we’ll see down weeks in the gold market.
Still, it’s obvious the bottom is in for gold. If you want to know what a low-risk entry point into a market looks like, look no further than this week’s BEV chart for gold, and the XAU above.
Silver’s BEV chart above looks good too. Silver lags the XAU, but is leading gold in their post correction rebounds, see table below.
But Geeze Louise, the goons at the COMEX dragged silver down below its BEV -50% line in the chart above. To recoup a loss of 50%, a market must advance by 100%. If silver should see additional new all-time highs in its BEV chart above, sometime in 2026, that would be simply amazing. Can silver do something like that? If bond yields continue rising, I’m thinking it.
For Months now, we’ve been waiting for when the gold market would begin seeing more daily advances, than daily declines. As seen in gold’s step sum table below, it appears we are now there. And the overwhelming daily advances are having a bullish effect on the price of gold. Since July 20th, gold is up 14.80%.
At this week’s close, gold’s 15-count closed with a +7, making gold an overbought market.
Markets don’t like being overbought, so expect a pickup in daily declines next week, and maybe a pullback from the high prices of this week. And then maybe not. It could be that maybe gold will see a 15-count of +9, or more in the months to come. As seen in the table above, such soaring 15-count values don’t happen often. In fact, since December 1970, they seldom happen at all.
If we do see gold with a 15-count of +9, or higher, it would be proof positive that something historic is developing in the gold market, which I believe it is.
Looking at the Dow Jones on its side of the step sum table, following its last all-time high on August 5th, declining days have dominated the Dow Jones. That isn’t good, but it hasn’t been bad either. Since August 5th, the deepest claw-back so far from the Dow Jones last all-time high, was only 2.92%, on Thursday this week. A 2.92% decline from an all-time high, following all of those down days, isn’t much of an accomplishment for the bears.
What to think about that? One of two things will happen from here. The Dow Jones could go on to make a new all-time high. From where it closed this week, the Dow Jones could easily do that in a single day. Then, the Dow Jones could do something really bearish, like make a break for its BEV -10% line, and then keep going down.
Late summer of 2026, has the makings of something historic in the financial markets.
Mark J. Lundeen
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