OldVet on the Optimist

Jim “Mad Money” Cramer gets called out for his optimism on the stock market, denies it, says he was predicting a fall in equities. Really? Here’s a recap of a discussion and then some history of Mr. Cramer ”on video.”

However it may not be the stock market that is the last bubble to burst. The bubble that is little discussed are long term Treasury bond prices, which have been in a long term increase 1982-2008 as long term interest rates have declined. (Bond prices move inversely with bond interest rates paid, or “yield.”)

As you can see from the chart below, along this rising trend, we’re now testing what they call a “triple top” formation. This means bond prices peaked in 2003, mid-2005, and are now peaking again in early 2008. If 30-Year bond prices break upwards out of this pattern, the asset inflation in the bond market continues. If prices fail, then we may well be at an important ceiling in that asset class.

From here, we can muddle along sideways, or decline in bond prices. In a world full of credit, and dependent on Treasury demand from foreign and domestic investors, what do you think they will do if upside gains appear to have ended? They can stick with the lousy interest rates and declining dollar combined with inflation that is now present in the US. Or they can look elsewhere for long term investments in bonds or other secure instruments that have better prospects and payoffs.

Would you keep buying used cars from a salesman who kept selling you cars that got worse and worse gas mileage? Or a headhunter who put you in jobs that paid less and less? Maybe we need Mr. Cramer to talk this market up!