Friday, January 13, 2017

When the bond market crashes if just 1% of that money went into precious metals it would empty world supply

A few days ago, the market designated 'Bond King' spoke at an annual economic forum in Chicago and laid out a scenario that if the 10-year Treasury Bond reached and stayed above 2.60%, it would signal the end of the 30+ year bond rally and bring in a bear market that could crash domestic and global bonds around the world.

Image result for bond market crash
If the yield on the benchmark 10-year Treasury note moves above 2.60 percent, a secular bear bond market has begun, investor Bill Gross warned on Tuesday. 
"Watch the 2.6 percent level. Much more important than Dow 20,000. Much more important than $60-a-barrel oil. Much more important that the Dollar/Euro parity at 1.00.   
It is the key to interest rate levels and perhaps stock price levels in 2017," Gross wrote in his latest investment outlook to clients. 
The 10-year Treasury note yield was around 2.37 percent late on Monday. - Reuters
Yet in addition to the benchmark Treasury Bond potentially shifting into a bear market here in 2017, global bonds are running on the opposite end of the curve where nearly $16 trillion worth of them are priced at negative interest.  And back in June Bill Gross warned that this could lead to a consequence far greater than just a bear market, as it could create an environment in which the entire $82.2 trillion global market could collapse outright.
Gross: Global yields lowest in 500 years of recorded history. $10 trillion of neg. rate bonds. This is a supernova that will explode one day.
Thus 2017 has the potential for two real negative scenarios in a market that is much greater than that of the equity markets.  Because in this era of credit based finance, where nations and central banks must continually create new debt to pay for or roll over existing debt that has now reached a level of 325% of the world's annual GDP, any crack in the bond markets could easily lead to a collapse in the sovereign institutions themselves.

So if this year does see a crisis, or even outright collapse in the U.S. or world bond markets as being predicted by more and more analysts, what asset classes are available for investors, governments, central banks, and individuals to move their money into?

Stocks?  For sure, a large portion of money would rush from the bond market into stocks.  But with PE's now well over 20 since the market spike beginning in September of last year, this market is extremely over-valued even right now.

Real Estate?  Indeed, real estate at the high-end commercial and residential levels are still rising in price, but with overall prices back to the same 2006 levels that signaled the end of the first Housing Bubble, there is still too much risk to make it a good replacement.

So what does that leave for people to move tens of trillions of dollars into that would be of minimal risk and would protect their wealth?  The answer of course is gold, silver, and other precious metals.  But with so many purchasers still buying the metals at nearly all levels (central banks, governments, institutions, and individuals) since the 2008 financial crisis, and spikes in buying going on nearly all the time because of financial crises taking place in India, Venezuela, Britain following Brexit, and even China because of their currency woes, it would not take much money at all to completely wipe out the global supplies remaining in the open markets, and drive the price up to levels that might not even show a bid at all.

In other words, make gold and silver priceless.

0 comments:

Post a Comment