Hoye on watch for the unwinding of the everything bubble

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In his most recent HoweStreet.com interview, Bob Hoye from ChartsandMarkets.com is on watch for a post-bubble contraction. In particular, he sees the yield curve reversing in the direction of a contraction and junk bond credit spreads once again breaking out. Hoye says, "Just looking at the spreads you could say this is anticipating a contraction".

For confirmation that we are in contraction territory, Hoye will be looking for an increase in real long-term interest rates, which are still declining. He will also be looking for an increase in the real price of gold, which he believes appears to be in the process of bottoming. On gold he suggests, "It won't take much for the real price to break out". However, he is cautious on the gold miners right now after their recent run.

Meanwhile, he notes that the shadow banking systems in both China and India have been running into problems. That could spell trouble for the more senior markets. "It is [a] classic problem whereby outlying exchanges discover the loss of liquidity first, and then it if feeds into the senior exchanges".

Investors may want to buckle up as Hoye suggests that historically when a major liquidity crisis hits, it is usually in the fall.

Hoye summarizes his thinking by suggesting, "everything is going to get un-bubbled".

Listen to the full interview above or on HoweStreet.com. To find out what insiders are signalling about market conditions, read our weekly Canadian market update available via the Canadian Insider Research Club and our Wednesday US market update available to InsiderTracking.com Advantage subscribers. Both reports are also available on INKResearch.com.

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