The day before Ben Bernanke was scheduled to speak regarding Fed policy, I stated: ” I would not be surprised to hear Bernanke give some indication that he is open to the possibility to beginning to start tapping on the breaks when he speaks tomorrow. If so, which we all know will have to happen sooner or later, there will eventually be a rush for a very crowded exit on bonds and dividend stocks.”
Of course, if you make enough prognostications, some of them are bound to stick every now & then. However, my point in revisiting those comments is not only to point out that.. A) Bernanke did indeed state exactly that and… B) a “rush for the exits” in fixed income and dividend stocks did begin immediately following his statements as to the possibility of beginning the tapering process soon. The point, as these charts below clearly indicate IMO, is that the rush for the exits since his speech on the 22nd (indicated on each chart below by the white arrows) is most likely only the very early stages of a much deeper, prolonged flight from the Fed’s latest bubble de jour. The basis for my opinion is not only predicated on the fundamental argument that these two asset classes are extremely overvalued and over-owned, but also from a technical perspective, as shown by the recent breakdowns on these charts.
In descending order of risk are the daily charts of IYR (REIT etf); HYG (high-yield/junk bond etf); LQD (investment grade corp. bond etf); MUB (national muni bond etf); and TLT (20+ year US Treasury Bond etf). Note: Several of these fixed income classes are at or approaching significant support levels and as such, will likely experience a near-term oversold bounce soon, especially if the broad market comes under some selling pressure as well. Other than a relatively short-lived bounce, these charts look to have considerable more downside over time.
