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While Stocks Soar Towards New Highs, Sophisticated Investors Are Already Prepping for the Next, Bigger Collapse

Phoenix Capital Research's picture




 

 

The US Government and the US Federal Reserve downplay the threat of inflation. There are two primary reasons for this:

 

  1. Acknowledging higher inflation would mean both revising GDP growth much lower (last quarter’s FDP growth would have been negative 1% if you accounted for the real increase in costs of living).
  2.  One of the primary arguments the Fed uses for why it can print hundreds of billions of Dollars without hurting consumers it because inflation remains “contained” or “transitory.”

 

Because of this, you won’t see any real acknowledgement of inflation by the US Government or the Fed until it’s far too late. Remember, one of the central goals for these organizations is to maintain confidence in the system.

 

Indeed, while the mainstream financial media continues to trumpet the wonders of stocks closing in on all-time highs, larger, more sophisticated players are preparing for a financial meltdown in a much larger market: bonds.

 

The cause? Inflation

 

Goldman Sachs and other large financial entities have begun to warn their clients about an implosion in the bond market.

 

Goldman Sachs strategists have issued a big warning to clients hiding out in bond funds: You're about to lose your shirt.

 

The reason: interest rates began rising this week, and if they return to the historical average yield of 3 percent, prices for long-term bonds will plummet. (By their very nature, fixed income prices must fall if rates rise.)

 

"A reversion of risk premiums to historical averages of 6% nominal rates (3% real rates and 3% inflation) would suggest estimated losses in portfolios with bond durations of 5 years of 25% or more," equity strategist Robert D. Boroujerdi said in a note.

 

http://www.cnbc.com/id/100355153/Why_Goldman_Thinks_You_Should_Dump_Bonds_Now

 

Goldman is not the only group be warning of a bond market implosion courtesy of rising inflation.

 

Finra warned investors today that if interest rates rise - as most market pros expect - bond investors could be slammed by long duration.

 

In an investor alert, the Financial Industry Regulatory Authority Inc. told investors that in the event of rising interest rates, “outstanding bonds, particularly those with a low interest rate and high duration may experience significant price drops.”

 

A bond fund with 10-year duration will decrease in value by 10% if rates rise one percentage point, the alert warns.

 

http://www.investmentnews.com/article/20130214/FREE/130219947

 

We get additional signs of the rising threat of inflation from the wave of Gold purchases made by Central Banks:

 

Worldwide gold demand in 2012 was another record high of $236.4 billion in the World Gold Council’s latest report. This was up 6% in value terms in the fourth quarter to $66.2 billion, the highest fourth quarter on record. Global gold demand in the fourth quarter of 2012 was up 4% to 1,195.9 tonnes.

 

Central bank buying for 2012 rose by 17% over 2011 to some 534.6 tonnes. As far as central bank gold buying, this was the highest level since 1964. Central bank purchases stood at 145 tonnes in the fourth quarter. That is up 9% from the fourth quarter of 2011, and the eighth consecutive quarter in which central banks were net purchasers of gol

 

http://247wallst.com/2013/02/14/central-banks-buy-the-most-gold-since-1964/#ixzz2LMLOfBPK

 

Note… Central Banks, while talking down money printing and denying the presence of inflation, bought more Gold in 2012 that any year dating back to 1964. Indeed, However, since becoming net buyers of Gold in 2010, the Central Banks have been increasing their Gold purchases rapidly.

 

In 2010, Governments worldwide bought 77 tonnes of Gold. In 2011 it was 457 tonnes. And last year it was a whopping 535 tonnes. All told, they’ve accumulated  1,000 tonnes of Gold since 2Q09. At today’s price of $1600 per ounce, this stash is valued at over $56 billion.

 

The key issue here is not the amount ($56 billion in Gold purchases is nothing compared to the over $10 trillion in new money Central banks have printed since 2007), but the trend: Central Banks were net sellers of Gold for decades until 2010.

 

So in plain terms, inflation is on the rise in a big way. With that in mind, smart investors are preparing themselves for it NOW while the rest of the investment herd isn’t paying attention (TIPS currently indicate there is no threat of inflation).

 

With that in mind, we’ve recently published a Special Report outlining the threat of inflation and how investors can protect themselves from it with Gold and Silver bullion. It’s called:

 

Bullion 101: How and Why to Buy Gold and Silver Bullion

 

And you can download a FREE copy of this report at:

 

http://www.phoenixcapitalmarketing.com/bullion.html

 

Best Regards,

 

Graham Summers

 

 

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Mon, 03/04/2013 - 19:31 | 3299268 Quaderratic Probing
Quaderratic Probing's picture

It makes perfect sense to buy a sub inflation rate bond in the hope that the Fed rate goes to zero. Because that means that everything is fixed........

Mon, 03/04/2013 - 18:07 | 3299062 caimen garou
caimen garou's picture

relying on  goldman sachs and cnbc  is , like taking advice from paul k and john c

Mon, 03/04/2013 - 15:33 | 3298556 uncle_vito
uncle_vito's picture

No inflation.  Deflation a la Japan.

Mon, 03/04/2013 - 15:41 | 3298579 LawsofPhysics
LawsofPhysics's picture

So, long any commodites priced in dollars and required for survival or to actually produce anything of real value. - "Winning"

Mon, 03/04/2013 - 15:32 | 3298550 MrBoompi
MrBoompi's picture

Most of us here know enough about Goldman Sachs to do the opposite of what they tell the public to do!

Mon, 03/04/2013 - 14:38 | 3298374 TideFighter
TideFighter's picture

Bond Funds = Drone Targets. 

Mon, 03/04/2013 - 14:16 | 3298323 waterwitch
waterwitch's picture

So now we should be trusting what GS is saying? What does Stolper say?

Mon, 03/04/2013 - 13:59 | 3298266 kaiserhoff
kaiserhoff's picture

Right direction, but wrong answer.  There are taxes in the real world.

Even 3% inflation creates the following yield:   3% Inflation recovery, 4% taxes, 3% real yield = 10%  or more

Probably a lot more.

Mon, 03/04/2013 - 13:13 | 3298110 Jack Sheet
Jack Sheet's picture

My dog's dick is better informed than Phenix Crapitall "Research".

Mon, 03/04/2013 - 12:58 | 3298060 digitlman
digitlman's picture

Same shit; different post.

But even a broken clock is right twice a day.

Mon, 03/04/2013 - 12:46 | 3298015 presk_eel_pundit
presk_eel_pundit's picture

I predict that one day, Graham Summers will be right. He also notes that "Central Banks, while talking down money printing..., bought more gold in 2012...", but the Central Banks that are printing money aren't the ones buying gold.

Mon, 03/04/2013 - 13:54 | 3298246 Tortuga
Tortuga's picture

Well no, but they are buying the gold with printed paper from the printers, rehypothecated so it's all in the same pot. They all go to the same meetings and are all hardwired up to the same computers using the same HFT's, it's the banksters, their political ho's and their cronies in the so-called regulators and not anybody else. RICO all the bastards, including the Rockerfellers, the Rothschildrens and the Queen and divy up the proceeds to the US debt and SS and Medicare; there will be "real money" left over, start over, problem solved.

Mon, 03/04/2013 - 12:06 | 3297854 pfairley
pfairley's picture

INFLATION? maybe later...higher taxes, & sequester spell slower US economy in near term...EU also slow...I think Goldman Sachs and most top forecasters agree.

Mon, 03/04/2013 - 12:05 | 3297846 Popo
Popo's picture

Interest rates are "about to start rising"?    I'll believe it when I see it.  

That's what they tell the "unsophisticated investors".  

Right, Graham?   Oh ...was that news to you?

Mon, 03/04/2013 - 13:14 | 3298103 Jack Sheet
Jack Sheet's picture

Right.
Interest rates- will stay at zero
Price Inflation according to shadowstats: 9% and rising
Result : USD spirals down the crapper.

Mon, 03/04/2013 - 11:43 | 3297784 Son of Loki
Son of Loki's picture

"Never been a better time then now to buy ...." is what I hear on TV and the radio.

Mon, 03/04/2013 - 11:23 | 3297703 lunaticfringe
lunaticfringe's picture

But I was just talking to a guy who told me treasuries are the safest investment going. 

Mon, 03/04/2013 - 14:21 | 3298330 akak
akak's picture

Well yes, of course --- I mean, they are issued with "the full faith and credit" of the US government, so that means risk-free, right?

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