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The Real Issue Isn't Stocks… It's Bonds
The mainstream financial media likes to focus on stocks because:
1) The stories are a lot sexier than bonds or currencies
2) They make for better hype jobs than bonds or currencies
If your job is to sit in front of a camera selling the notion of getting rich from investing, you’re not going to talk about bonds or currencies (maybe the latter is of interest but only with insane amounts of leverage which usually bankrupts a trader in his or her first trade).
However, today stocks are in fact a very minor story. They are, in a sense, the investing equivalent of picking up pennies in front of a steamroller.
That steamroller is the $100 trillion bond bubble.
For 30+ years, Western countries have been papering over the decline in living standards by issuing debt. In its simplest rendering, sovereign nations spent more than they could collect in taxes, so they issued debt (borrowed money) to fund their various welfare schemes.
This was usually sold as a “temporary” issue. But as politicians have shown us time and again, overspending is never a temporary issue. This is compounded by the fact that the political process largely consists of promising various social spending programs/ entitlements to incentivize voters.
This type of social spending is not temporary… this is endemic.
The US is not alone… Most major Western nations are completely bankrupt due to excessive social spending. And ALL of this spending has been fueled by bonds.
This is why Central Banks have done everything they can to stop any and all defaults from occurring in the sovereign bonds space. Indeed, when you consider the bond bubble everything Central Banks have done begins to make sense.
1) Central banks cut interest rates to make these gargantuan debts more serviceable.
2) Central banks want/target inflation because it makes the debts more serviceable and puts off the inevitable debt restructuring.
3) Central banks are terrified of debt deflation (Fed Chair Janet Yellen herself admitted that oil’s recent deflation was an economic positive) because it would burst the bond bubble and bankrupt sovereign nations.
The bond bubble, like all bubbles, will burst. When it does, everything about investing will change.
Bonds have been in bull market since the early ‘80s. Thus, an entire generation of investors and money managers (anyone under the age of 55) has been investing in an era in which risk has generally gotten cheaper and cheaper.
This, in turn, has driven the rise in leverage in the financial system. As the risk-free rate fell, so did all other rates of return. Thus investors turned to leverage or using borrowed money to try to gain greater rates of return on their capital.
Today, that leverage has resulted in $100 trillion in bonds with over $555 trillion in derivatives based on bonds.
This bubble, literally dwarfs all other bubbles. To put this into perspective, the Credit Default Swap (CDS) market that nearly took down the financial system in 2008 was only a tenth of this ($50-$60 trillion).
When this bubble bursts, 2008 will look like a picnic.
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Humm , were do you think investors will flee when the stock bubble bursts? It is the last melting iceberg.
I'm hoping GOLD.
They will confiscate it. They've done a pretty damn good job of suppressing it so far.
Muni bonds look great because cities are solvent and booming. Good weed provides such clarity. Yeah, right.
You know,
I subscribed to P-Capital, and I keep getting their doom and gloom e-mails....
But they could help us out a bit, and tell us when.... WHEN??
Prepare is well very well, but we've been seeing the SPX go from 666 to 2100, and these guys are shouting sell. We've seen gold go from $1920 to $1200, and these guys keep shouting buy.
Makes you wonder sometimes...
Just sayin!
No one knows WHEN, which proves that crystal balls do not actually work; I digress:o
They actually made a specific prediction once last summer. The prediction was wrong. They have never done it again. It seems more profitable to continue to make endless doom and gloom predictions with no time frame. These clowns have been doing this years now.
How does the sovereign bond bubble ever "burst". As long as Central Banks can set rates and buy unlimited amounts of government bonds with newly printed money, interest rates can never rise. Central banks have an infinite power to print. Nothing can counteract infinity. If anything, I see an opposite scenario. Central banks all go into NIRP, and all sovereign bonds get negative rates. The negative rate keeps getting lowered (more negative). Eventually, people desert the official currency and go back to gold and silver as the financial system breaks down. More of a slow, progressive crumble than a burst.
The real issue is rating agencies....among other things.
wwxx
"For 30+ years, Western countries have been papering over the decline in living standards by issuing debt."
30+ years ago, the FED interest rate peaked and began to decline toward ZIRP.
I'm an amateur and I once opened an account to trade currencies. I obviously had no idea what I was doing and lost $25K in the first 3 days. Never again
Goin to open a CDS shop like AIG. Credit Insurance for everyone! No limits!! No Mark to market!!
Bonds are supposed to be a part of our economic foundation but the way things are now I wouldn't build a tar paper shack on that foundation. When you include derivatives things go well beyond hopeless. We'll look at Greece as one of the lucky ones by the time things finish falling apart.
"When you include derivatives things go well beyond hopeless"
Perfectly stated.
What does one do the day after doomsday when one has purchased doomsday insurance?
NOS-correspondent Arjan Noorlander is niet op de hoogte dat de Griekse minister van Financiën Varoufakis wacht op netwerk Juncker.
http://nos.nl/artikel/2020976-grieks-voorstel-laat-nog-even-op-zich-wach...
Officieel moet de Griekse regering vóór middernacht een lijst met hervormingen indienen bij de geldschieters in Brussel, maar die is nog niet binnen. Op zich wil de regering meteen het DAB-systeem indienen, maar dit vinden de centrale banken van de andere MuntUnies niet goed.
http://www.ftm.nl/exclusive/follow-money-selecteert-11/
De 'Logica van de 1' moet de taal worden van de EU, maar de hele geschiedenis van de eurozone kenmerkt zich met 'wollig taalgebruik', waardoor 'woorden en documenten' totaal niet eenduidig kunnen worden geïnterpreteerd. Rutte (‘engage‘) en Dijsselbloem (‘template‘) kunnen er inmiddels over meepraten dat ze niets hebben begrepen van de blauwdruk van het systeem 'Leven en Laten Leven'. Hetzelfde gebeurt nu aan de Europese onderhandelingstafel met de Grieken, al gaan de interpretatieverschillen daar over ‘flexibiliteit’ en ‘hervormingen’. De Duitse minister van Financiën Schäuble verzuchtte meermaals ‘niet te begrijpen wat de Grieken nu eigenlijk willen’.
http://www.nu.nl/isis/3998363/nieuwe-amerikaanse-minister-van-defensie-b...
De nieuwe Amerikaanse minister van defensie Ash Carter heeft maandag in Koeweit een buitengewoon overleg met Amerikaanse generaals, diplomaten en vertegenwoordigers van inlichtingendiensten belegd.
Denk je dat ze hier Nederlands kunnen begrijpen ?
Exactly. If every ZH'er starts posting articles in his own language, we're going to have to wade through a lot of incomprehensible posts before we can get down to business in the comments' section.
Red Storm Rising...
>For 30+ years, Western countries have been papering over the decline in living standards by issuing debt
Nyetski, nobody can make the case that standards of living have declined, only that they were purchased by debt.
And most of that debt is held by the banksters and the 0.01%. So much that it seems they are sated, they can't even imagine spending it, and so additional debt seems safe to issue, it immediately falls into a black hole.
That would explain why it takes two incomes and the abandonment of children (daycare) in order to maintain the same standard of living 30 plus years ago; NOT!!
Some one is holding the debt and is of the beief that they should be paid, such as a lot of retirement funds and accounts, so where does trhe 'haircut' have to start? You grand-ma as in Ukraine?
Of course the issue is bonds, they are IOU's from insolvent entities. Here's a great summary of how we got to this point.
http://debtcrash.blogspot.com/2015/02/history-and-introduction.html
Or the sun finally explodes...