J.P. Morgan Chase CEO Jamie Dimon recently raised his forecast for rates on the Ten-Year Note, currently trading just below 3%, to 5%. He’d predicted a rally to 4% back in May but now thinks the bull market in stocks could run for another two or three years, putting additional upward pressure on long-term yields. For its part, Rick’s Picks has told subscribers to expect a push soon above the 3.11% peak recorded back in May — a peak we had foreseen five months earlier when the Ten-Year Note was paying around 2.35%. We offered no specific target at the time but will now: 3.32%, as shown in today’s chart (see inset).

It’s hard to square Dimon’s interest-rate forecast with the notion that the bull market in stocks has a few more years to run. Our gut feeling is that anything above 3.25% will asphyxiate the U.S. economy and send it into recession. The housing sector is already in a sharp downturn as reported here last week., and even a small turn of the interest-rate screw could asphyxiate it, along with auto leases. This would be a double whammy for the stock market, since mortgage rates have been held for a long time at levels that allow Americans to buy more home than they can afford.  Similarly, car leases are structured so that we can drive more car than we can afford. The silver lining here turns out to be an unappealing scenario:  rates go no higher than 3.50-4.00, but only because the U.S. economy has nosedived. _______ UPDATE (August 19, 5:07 p.m.): The uptrend stalled at 3.106% and in the three weeks since has receded to the middle of the 2.72% – 3.11% range in which rates have fluctuated for the last six months. My bias is neutral for now. Here’s an updated chart. ______ UPDATE (Sep 24, 10:46 p.m.): Rates on the Ten-Year Note are breaking out following a four-month consolidation. My minimum upside projection, shown in this chart, is 3.157%, but an easy move past that Hidden Pivot would imply yields are headed still higher._______ UPDATE (Oct 3, 8:28 p.m.): The uptrend impaled our 3.157% target, opening a path to the 3.319% Hidden Pivot resistance of an even bigger pattern. When it gets there — and it will — the February 2011 peak at 3.744% will beckon a test. Were the rally to fail at that level, the financial system would still be under considerable stress at that point to pay the going rate on debt._______ UPDATE (October 7, 5:53 p.m.): Two big thrusts last week have shortened the path to the 3.319% target. If it’s decisively exceeded, look for more upside to at least 3.469%, the Hidden Pivot resistance shown in this chart.