The Chicken or the Egg and Why Should We Care?
June 16, 2016
What comes first – the end of the 100 year love affair with central banking which causes the mass selling of global sovereign (government) bonds or visa versa? They are both the biggest bubbles in the history of mankind and they are adjoined twins.
As I have stated several times in my outlooks, I believe that the global sovereigns are putting in a yuuuuuge, massive, monstrous top in prices, another words, a bottom in yields, but that the shorter term yields will bottom first, followed by the longer term yields with a long lag. Please refer to the first two charts below, courtesy of Jeff Gundlach of Doubleline Capital. You can see the 2 year treasury yield bottomed in Oct 2011 with a yield of .15%, and the recent high was in Dec. at 1.1%. However, the 10 year didn’t bottom (at least so far) until July 2012 with a yield of 1.6% with the recent high being 3.05% in Jan. 2014. And the next 2 charts are the 5 year yield and the 30 year yield with the charts spanning ten years and showing what I believe is the massive bottom in yields. You can see the 5 year bottomed in July 2012, while the 30 year didn’t bottom (so far) until this past Jan. You can see the bottoming lag occurring from the 2 to the 30 years. And I said when referring to the bottoms “so far” because there’s still a good shot for both the 10 and 30 year yields to put in one more spike lower low bottom, (which I call a technical spring), as we get one more deflation scare. You can refer to previous outlooks for more details where I talked about that.
So why should we even care about all of this? Because this is exactly why I am so frightened for our future and why I want people to start preparing immediately. The destruction of the environment of complacency and total ignorance of how debt even works in society is going to have profound effects on all of us, including many industries, and all financial markets. The massive bear market in bonds will have huge ramifications for all of the industries which have relied on debt since this debt orgy started after WWII. All of you can figure out which industries that would include, but certainly real estate, college, all consumer items, etc. And the positive effects on the stock markets, precious metals, and commodities will be enormous.
There’s plenty of other effects that I haven’t even begun to understand yet, so please let me know your thoughts about that.