Ross Clark studies Data, much of it going back centuries, in order to define the tendencies, patterns and cycles that reveal areas of risk and opportunity. For example, Ross told Michael Campbell about the “Sell Side” indicator. 

Historically the Sell Side Indicator, which is the consensus of opinion of the analysts in New York of what percentage of an investors portfolio should be in equities,  has ranged as low as 47% when everybody is quite negative to the high 60’s when everyone is extreme bullish as they were in 2001/2002 following the Internet Boom.

Remarkably right now the Sell Side Indicator is only 44%!  So with the indicator at this unusually low level, Ross plotted the Sell Side indicator against the S&P and clearly found that over the next 6-12 months this combination has a phenomenal record of revealing big upside moves in the market. Not modest moves either, indeed they are typically in the 20-30% bracket. The disaster in Europe and troubles financially in the US has made analysts negative stocks at a time when history indicates powerfully that the market is about to rally. 

But the big issue Ross wanted to make very clear is that the Bond Market is at an extreme. Like any market at an extreme, significant change is afoot. Yields are at historic lows, at the tail end of a long term decline in interest rates that began 32 years ago in 1980.

These are unnerving times, people are feeling very uncertain and in these times of risk aversion bonds go up (rates down).  And down those rates have certainly gone with the 10 Year US T-Note hitting a tiny 1.4% yield recently. Rates have even gone negative in Germany. How long can this go on, or better yet are interest rates and bond prices not at an extreme? 

Ross Clark: “Extremes occur every 3 1/2 – 4 years and this is right in the window where we are now. We have good overbought readings in everything from the sovereign items through to the corporate, the high yields, the emerging bonds, all of the sectors within the bond complex. I believe we are in need of a pretty sizeable correction, or down move in the pricing of bonds and an upmove in interest rates. This situation is the most significant factor in markets today. There has been such a flight to these items, particulariy in the last 6 months or so, and from a technical perspective its overdone and in need of corrections. You have a 10 Year US T-Note that bottomed at 1.4%, currently at 1.65% right now.  Typically, looking at 50-60 years worth of data, you would rally those interest rates back the the 55 month moving average which would be a 2.%-2.6% yield on that 10 Year Note. To go from 1.4% to 2.6% is a huge, and that move would have a big impact on the price of bonds.“

Of course a rise in Bond rates will effect anything that is directly interest rate related from mortgages to bank loans.