The stock market remains at the most expensive levels in history. Furthermore, it is still extremely overbought from a technical point of view. This tells us that a drop will likely arrive soon, he warns Mary anne other Pamela Aden, experts in market timing and editors of Aden’s prognosis.
We will start with the relationship between stocks and bonds, which compares the strength in these two markets.
When this ratio is too high, as it is now, it means that stocks are too expensive compared to bonds. I mean, it’s time to buy bonds because they are so cheap compared to stocks. (The reverse is true when the ratio is too low.)
More from Mary Anne and Pamela Aden: Aden’s forecast on a switch to bonds
As you may recall, bonds work well in uncertain times. Usually that’s when investors move from stocks to safe-haven investments. And bonds are one of the top safe havens of choice. At this point, if economic and geopolitical uncertainties coincide, bonds could skyrocket.
So our best advice is to stay cautious and rush to lighten your actions at the first signs of weakness. That is, do not lose sight of the exit. That’s when you’ll want to switch to long-term bonds, if you haven’t already purchased them.
Maybe we are being too conservative, but we don’t believe it. Something is happening. We don’t know what it is yet, but we’ll find out soon.
The bottom line is that US Treasuries are the investment of choice for big investors in times of uncertainty. If signs of uncertainty continue, which we believe will be based on evidence and market action, institutional investors will rush to sell stocks and buy bonds.
Meanwhile, the world likes US bonds and considers them a safe investment. And as buyers arrive, bond prices will go up. Also, US bonds are better than bonds from other countries.
Higher bond prices will offset the downside of a negative interest rate, and when bond prices rise sharply, the gains can be very impressive. In 2018-19, for example, bond prices soared around 100% and it looks like the next increase could be similar.
More importantly, the Fed doesn’t want higher interest rates, period. It will keep interest rates low and continue with its easy money policy. As we know? Because the Fed keeps saying so.
Better to look at what the Fed does and not what it says. And without putting it in so many words, the Fed’s story is that the economy needs bond buying stimulus to keep going.
Considering that government debt has skyrocketed to the point of running a $ 3 trillion deficit over the past two years, it’s almost as if the Fed couldn’t or wouldn’t raise rates. It would be financially dangerous and in the current situation they are likely to continue on their current course.
See also: Safe driving with Gentex
In general, bonds have great upside potential and will likely be one of the best performers in the coming months. If you prefer to buy a bond ETF, our favorites are IShares 20+ year bonus (TLT) that tracks long-term US Treasuries. We also like SPDR Portfolio LT Treasury (SPTL); it also moves with long-term treasuries. And last but not least is IShares TIPS Bonus (TIP), which is a bond protected against inflation.
More from MoneyShow.com: