The Bursting of the Bond Bubble Has Begun
The bursting of the bond bubble has begun.
As I’ve outlined previously the primary concern for Central Banks is the bond bubble. CNBC and other financial media focus on stocks because the asset class is more volatile and so makes for better content, but the foundation of the financial system is bonds. And bonds are THE focus for Central Banks.
In the simplest of terms, the world is awash in too much debt. The bond bubble was close to $80 trillion in size going into 2008. The Central Banks had a choice to either let the defaults hit and clear out the garbage debt from the financial system or attempt to inflate the debts away.
They chose to attempt to inflate the debts away. Put differently, all of their policies were aimed at containing debt deflation… or the process through which debt becomes less and less serviceable leading to eventual insolvency and default.
To whit:
1) Central Banks cut interest rates to zero to make bond payments smaller.
2) Central Banks launched QE and other programs to put a floor beneath bond prices (when bond prices rise, bond yields fall and debt payments become smaller and easier to service).
3) Central Banks provided verbal intervention promising to do “more” or “whatever it takes” whenever bonds came close to ending their bull market.
As a result of this, the financial system has become even more leveraged than it was in 2007 at the beginning of the last debt crisis.
Globally the bond bubble has grown by more than $20 trillion since 2008. Today it is north of $100 trillion, with an additional $555+ trillion in derivatives trading based on it.
Yes, $555 TRILLION, more than seven times global GDP, and more than 10 times the Credit Default Swap market ($50 trillion), which triggered the 2008 Crisis.
By not allowing the bad debts to clear in 2008, the Central Banks conditioned everyone from consumers to corporations to believe that business cycles could be contained and that the bond bubble/ bull market had not ended.
As a result of this, TRILLIONS of dollars of capital have been misallocated. The evidence is everywhere you look. Corporates around the globe have been issuing record amounts of debt, much of it in US Dollars.
Few of these bonds were high quality. Indeed, globally over 50% of all corporate bonds are now “junk.”
Chinese firms might be the most out of control when it comes to bond issuance, but they are hardly unique. As the below chart reveals, the pace of corporate debt issuance in Emerging Markets worldwide has been extraordinary relative to economic growth.
Today, the Emerging Market corporate bond market is equal to nearly 75% of total Emerging Market GDP. It was at just 50% in 2007 during the last peak!
H/T Jeroen Blokland
This has also been the case in the US where corporates have posted four straight years of record bond issuance.
Moreover, most of US corporate bond issuance is going towards stock buybacks and financial engineering (massaging results to look better than they are) NOT legitimate expansion.
As a result of this, the financial system today is even more leveraged with more garbage debt than it was going into 2008.
Another Crisis is coming. Smart investors are preparing now.
We just published a 21-page investment report titled Stock Market Crash Survival Guide.
In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.
We are giving away just 1,000 copies for FREE to the public.
To pick up yours, swing by:
https://www.phoenixcapitalmarketing.com/stockmarketcrash.html
Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research
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Do TPTB even feel the need to get on TV and tell us what they are going to do to save us all from the coming implosion like they did back in 2008/9? I don't think so. After all that has happened with bail outs, take-overs, QE, ZIRP with nary a peep from us sheep I think they will just carry on without "worrying" our little heads with these matters.
Shhh...it's only a dream, now go back to sleep...., que: softly humming lullabye and good night....
Your thesis might indeed be correct, but with a headline like "The Bursting of the Bond Bubble Has Begun" it would be great if you at least touched on some specific signs of said bursting. The fact that debt levels continue to expand rapidly is concerning. But, the critical question is "at what point do CBs lose the ability to supress interest rates?"
10 year rates had an opportunity to break out on Nov 9, Dec 3, Dec 16 and Dec 30 -- yet didn't. They reversed off the same trend line that dates back to 2007. This tells me that TPTB still maintain control. The development to watch is what happens when rates reach strong support at 2.02 in the next day or two.
http://pebblewriter.com/update-on-bonds-jan-13-2016/
You are correct. We're watching the 10 year go to 2, right? This has been going on for a while. Here's my context- related comment, I guess:
Nobody knows the answer to the question everyone is asking, "When?" What is important and telling is that it is not an "If?" question. It is just a matter of "when", which no one knows, but that is enough. "When" will be: When someone who has regular payment to make (pension checks, annuity checks, stock dividends) can't pay. Someone big and important, and if the shorts are trying to take it down, like Lehman, then that won't help them, either. That's specific enough. It's coming, it doesn't really matter "when". From what I can see when is happening right this second. When will probably come sooner because we all feel it coming, so no one is bothering to work (have to go online and take 12 page psych test to get any job in the U.S.), and stays home and sells drugs or make porn or sell on Ebay or whatever their doing. Underground economy. No tax revenue, and why should we pay? Nobody knows when, or will be able to see where or when, and it's missed energies trying to figure it out. Whether or not the article is a bullseye or not doesn't matter, because it's close enough to the target. And close enough matters in horshoes, hand grenades, and probably these matters, as well.
They will keep it going until they've sucked evey last fucking red cent out of us that they can. Until they've taken all of OUR liquidity. So that should be real soon. Anybody who says they know when is full of shit, and the real pros say "I don't know when".
(repost)
*****NOTICE TO ALL CITIZEN SERVANTS***** (OFFICE OF THE AUTHORITARIAN POLICE STATE)You are hereby notified that you are no longer American Citizens. You will now be identified as Public Citizen Servants Of The Dictatorship Of The Fascist Authoritarian Police State. Your Constitutional Rights have been placed on suspension until further notice. This order has been issued by your Supreme Masters who, by the power vested in them through your complacent apathy, have assumed the Authoritative Power to Dictate over the Constitutional Rights which once defined you as American. Your Supreme Masters have decided that The United States Of America is now officially a fascist police state, and that the Authoritarian Police State is now the foundation of society. The Constitution Of The United States Of America, including any individual State Constitution, and the fundamental principles recorded therein are no longer the foundation of American society. From this time forth, until determined otherwise, the fascist principles dictated as seen fit by the Authoritarian Police State, working in cooperation with the various offices of Police Benevolent Associations, Fraternal Orders Of Police and Police Unions. will determine your Rights and Law.
FREE SPEECH IS NOW A CRIME. PROTEST IS NOW A CRIME. SELF DEFENSE IS NOW A CRIME. FREEDOM, LIBERTY, LIFE AND THE PURSUIT OF HAPPINESS ARE NOW ACTS OF CRIME. THE EXERCISE OF ANY RIGHTS AS DEFINED IN THE CONSTITUTION OF THE UNITED STATES OF AMERICA AND IT'S SUBSEQUENT BILL OF RIGHTS, AND ALL NATURAL RIGHTS IMPLIED THEREIN, ARE NOW ACTS OF CRIME. Law Enforcement Officers are no longer held to any requirement of Probable Cause or Reasonable Suspicion. Citizen Servants are considered Guilty Until Proven Innocent. Citizen Servants are no longer entitled to Due Process. Any possession of any weapon by anyone who is not a law enforcement officer is punishable by on-the-spot summary execution. Possession of any object perceived as a weapon by any officer of the law is now punishable by on-the-spot summary execution. Any challenge or contest of the actions of any officer is now punishable by on-the-spot summary execution. Any failure to comply to any order(s) issued by any officer is punishable by on-the-spot summary execution. Anyone with a criminal record, who may be suspected of having committed an offense in the past, or who may appear to be suspicious, is subject to on-the-spot execution as seen fit by any officer of the Law. Any complaint against or about an officer, law enforcement, or Law is punishable by on-the-spot summary execution. Officers retain the Right To Decide, Determine, Dictate and Administer Law, according to any situation and at any time, however they may see fit.
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First, they created lol "Free Speech ZONES" Then they cut them down to 10 square feet....then they took them away altogether
...but like i said before, I like shiny shit myself, but it doesn't really matter.
Anyway, sir, gonna go look around for some land for my self- sufficient farm now.
So if everyone were to pull their money, buy a store of value (say, silver) then, when it collapses (you're watching, right?), and ******the FDIC pays the derivatives holder's (Big BAD Banks) senior debt first*****(you're a bank creditor, but behind them in seniority thanks to Congress last omnibus bill Citi tucked this in there see video below), and there's nothing left for the retail depositors, you can still come out with the razor blades, or gold or oil or whatever (maple syrup), and trade for whatever next bullshit they come up with, (I just think of currencies as "credits") but it won't be a gold standard, right?.
Or you can sit in your (compound) and sell (trade/ barter) goods to someone who has. Either way.
https://www.youtube.com/watch?v=2oehMznZd7w (this video flagged for removal from craigslist).
FUCK YOU CORPORATE AMERICA, HOPE YOU DON'T LIKE IT.
If they were on a standard, there wouldn't be any reason to stack, but if they're going to debase the currency (and we know they are, because they always do, when not on a fixed standard, and even then they dilute the metals, too) then it's only a matter of time to reach a mathematical certainty.
...and remeber, especially you shiny shit haters, I'm not making a profit (ordinarily), I'm storing my value, I'm locking it in. There is no profit, just an exchange for something else. I might exchange for more dollars than I paid, but they're worth less, and if they're worth more, I get less of them. Gold isn't about profit...
It's about safety. Gold is the sum of all fears.
No I have U.S. dollars here. My rent is going down every day. It's $591 US everyrthing included (today) for a "bachelor"/ loft downtown, in a highrise, laundry, sauna, pool, roofdeck. If there were five topless French girls on the roof deck in the summer that wouldn't suprise me, cause there's 2 or 3 universities very close, so the building is full of them. So I take the US and walk to a distributor you probably know, with a wicket, and lock in my high dollar with no shipping or insurance charges (wholesale). I make money on every transaction there so I don't worry about a few dollars here or there. . If I need paper I walk back over and don't worry too much because it's pretty stable overall. They're a bank too (in my mind). I have less than $3 in the other, it's gonna crash like tomorrow, and my Economics professor said he alwys learns something whenver he talks to me. I'm on a gold standard.
Was thinking of buying some razor blades or whiskey for our off-grid farm Inves-teur guy and doing the arbitrage thing, but I like shiny shit. The banks seem to like it A LOT.
...and No, I see it as protecting myself from their sorry asses. Maybe if they can get it together I'll trade for some IMF D.R., but until then...
I forgot to say FUCK YOU! today to Purdue Pharma, killing our families for money (opiates/ Oxycontin). They have a "new" product now to "profit from colossol misery".
ummmm...... moar chart porn please.
seriously... how long have we known that "the world is awash in debt"?
Junk bonds are already collapsing. Investment grade bonds and preferred stocks are under a lot of stress.
I predict that the AB InBev accquisition of SABMiller will fail - I suspect the interest rate demanded for the $55 billion in junk bonds to be issued will be well into the double digits if the bonds can be sold at all, and that might be enough to sink the deal.
Depending on how badly state and local tax revenues shrink, a lot of state and local municipal credits will default.
The last credits to fail will be US Treasuries, simly because they will be viewed as the last safe investment. I expect rates on Treasuries to fall a lot this year. We could see the 30-year Treasury rate fall below 2%.
I suspect this means that if one buys Treasuries NOW, there might be some significant capital gains to be had IF one can get out before a collapse.
I hope the merger between InBev and SABMiller fails. There should be antitrust proceedings against it. But in our criminal economy, no such thing will happen.
Here are some signs of a coming recession.
1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.
http://www.marketwatch.com/story/deteriorating-junk-bonds-flash-warning-signs-for-stocks-2015-12-07?dist=afterbell
2. Factory orders continue to drop
http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row
3. Default risk spikes
http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high
4. M&A set record
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/
5. Iron ore prices tumble
http://www.marketwatch.com/story/iron-ore-prices-keep-crashing-adding-to-global-growth-fears-2015-11-30
6. Baltic dry shipping index tumbles
http://www.marketwatch.com/story/shipping-index-falls-to-all-time-low-stoking-fears-about-global-growth-2015-11-19
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
Speaking of bonds, what about this?
---------------------------------------------
One Trillion Dollars' Worth of Bonds Magically Turn into Cash
Hugo Salinas PriceBloomberg is back and presents updated data on International Reserves held by Central Banks, excluding gold, as of Friday, January 8, 2016, after a hiatus on this information since December 11, 2015 (for reasons unexplained).
The data for Friday, January 8, 2016 are shocking, as expected: Total International Reserves held by Central Banks, excluding gold, expressed in US dollars, amount to $11.032 Trillion dollars as of that date.
The decrease in Reserves thus amounts to precisely $1 Trillion dollars, as of January 8, 2016. This gigantic fall, of 8.31% of the maximum amount of Reserves - $12.032 Trillion dollars recorded on August 1, 2014 - took place over the course of only 17 months, whereas the growth of Reserves to its maximum figure took some 70 years, roughly since the end of WW II.
The fall in International Reserves is a clear indicator of a world-wide economic slump, which will become a severe depression.
It would be much easier to stop the flow of water over Niagara Falls, than to halt the contraction in International Reserves.
World liquidation has set in. The Piper must be paid. Growth is gone. This will be story in this epic year 2016.
There is a One Trillion Dollar Question: What entity or entities have purchased - for cash - the $1 Trillion dollars worth of Government Bonds that the central banks of the world have sold off in the course of the past 17 months?
What discount on the value of the Bonds did the purchaser or purchasers of the Bonds apply? If there was no discount, why so?
$1 Trillion dollars' worth of Government Bonds has disappeared from the books of the world's central bankers, sold by them for cash. WHO DID THE BUYING? On what Balance Sheets do the acquired $1 Trillion dollars of Bonds now rest?
Are the parties to these gigantic transactions to remain unknown? And what happens to the world's confidence in its financial system, when $1 Trillion dollars' worth of Bonds, and counting, just magically turn into cash?
http://www.plata.com.mx/Mplata/articulos/articlesFilt.asp?fiidarticulo=280
Salinas is right on.
Who is the hidden purchaser of the $1 trillion worth of dumped US Treasuries? Why, the US Treasury, of course.
They are hidden because the funds used to purchase were off-book funds provided by the Exchange Stabilization Fund (which was established in 1934 and initially funded with $3 billion obtained as windfall profit via the confiscation of US gold and subsequent revaulation of that gold 6 months later; Rob Kirby estimates that the value of the fund has grown to trillions of dollars by now).
My own question about this is if there is any limit to the amount of money that the Treasury can come up with to continue purchasing the tidal wave of Treasuries being dumped on a global basis?
It seems to me that even if there is *no limit* to the dollars that the US Treasury can supply for such purchases, at some point the nations and peoples of the world will refuse to continue to accept them. Which of course means the end the dollar as the global reserfve currency, and the corresponding inability of the US to purchase imported industrial goods, oil, and everything else for fabricated fiat dollars.
"Yes, $555 TRILLION, [...] more than 10 times the Credit Default Swap market ($50 trillion)"
Can someone tell me what form these $555 trillion of derivatives take? I'd been assuming that the term "credit derivatives" was just a synonym for CDSs. Thanks.
Don't know if you meant that as a question or a challenge, but I'm with you, Stripe. The number I've always heard bantied about is $50T. NO IDEA where this $555T emerged, and it's not like a $50T Credit Default Swap market isn't large enough to cause a few problems.
FABULOUS investment day !!!
My portfolio of US treasuries, select munis, and FDIC insured brokerage CDs is soaring in market value - PLUS I am earning interest income every day.
Compare to money rotting in shiny shit with zero income.
PMs are for insurance against economic collapse, not wealth accumulation.
In an economic collapse, gold or silver will let you buy food and supplies, provided you have small denomination coins.
In a collapse, most merchants couldn't make change for a 1 oz gold coin if all you wanted was a loaf of bread or a dozen eggs.
I own a self-sufficient farm. If there is an economic collapse like the priests and followers of the shiny-shit cult prophesize every day after day after day for decades, and you show up at my farm trying to barter for real food with your shiny-shit, then you had better have tons of it because I will require massive quantities of your shiny-shit for even the tiniest amount of real food.
You would do MUCH BETTER bartering with me for real food if you come with things that have practical utility value in a survival situation, eg medicines, seeds, gasoline & diesel, solar panels, controllers and wiring, wind turbines, fertilizer, tractor parts, motor oil, LED lights, rechargeable batteries, tools, ammo, construction materials, etc, etc, etc - BUT NOT totally useless shiny-shit.
Good survival instincts, however I wouldnt be to self-assured about the mid and long term future. Sure 2s and 5s are doing, great albeit no yield, but the shiny stuff will hav its day too.
That's no really a problem because I can trade shiny shit for other things because people love shiny shit, especially women, and so the men will buy it/ trade anything for it (fungibility). So it looks like we have a deal!!!!!
Invest-r u been badmouthing shiny shit all day! Of course we don't have it all in shiny shit, gotta diversify, as you say.
See? I have the formula for concrete right here!!!
Dude, we get it, you think buying Pms is foolish. A normal person will hold that belief and let other people do as they will. You like to crow constantly about how much better your investments are doing and why you're superior to the gold bugs. Have you ever considered that maybe there's something wrong with you?
The priests and followers of the shiny shit cult "like to crow constantly about how much better" their shiny-shit "investments are doing and why" they "are superior to the" non-gold bugs.
"Have you ever considered that maybe there's something wrong with you" priests and followers of the shiny shit cult ?
The truth is that your shiny-shit can achieve its over-hyped value and reward ONLY if the entire existing monetary, financial and economic system collapses resulting in unprecedented human suffering an misery, making all of you shiny-shit cult worshipers despicable ghouls.
I quote another ZH member regarding my posts:
"The doom, gloom and constant gold infomercial called ZH is a turn off. Its nice to read your contrarian replies to the contrarian website."
the ghouls are the central bankers and their puppets called politicians. The shiny-shit crowd has just been pointing at the real cause of all the financial stress.... if you're going to hate people at least hate the ones that are actually making life difficult for so many
AND those who yearn to profit from the resulting maximum-possible worst outcome and collossal misery
And here i thought a Bond, was some glue that held everything together.
So when the central bankers foreclose on the nations of the world, as in Greece, and when the deriviatives based thereon collapse taking the commercial-investment banking houses with them do the bankers think it'll work out for them or do thet fear ropes and lamp posts and a date with fate? These f*** heads have been messing up civilization for centuries and one would think their day in the sun would run out at some time considering "what they have done" as Mr. Putin so rightly questions.
They were willing to give me half spot, can you do better than that?
...but if you're willing to give me a lower negative rate than they can, how can I pass up such a generous offer?
"...but if you're willing to give me a lower negative rate than they can, how can I pass up such a generous offer? "
Exactly. And in this case, you have to give them a toaster!
Well, actually, I was going to buy some CD's because my banker says...
Best and shortest explanation of the bond market I've read.
I'll talk to you guys later, headed off to sell my metals, and then gotta stop by the bank to make a deposit...or maybe the stock market...
Quebecguy, I can propose a swap to avoid any transaction costs: your gold and silver against my bank deposit.
"your gold and silver against my bank deposit."
Don't forget to arb the USD/CAD!
Gold is down and going down a lot more in 2016.
More than 40% loss in value from the peak for the magic metal that is over-hyped as the preserver of value.
Gold = where money goes to stop working to produce income, to rot and die.
Sh!t stirrer.
Gold = What worthless money attaches to... to become "Valuable" Thus the expression "Backed".... Gold is hard evidence of work performed. Dickhead! You've got to stop with this shit?
Gold is money so money doesnt go to gold? GOLD is the TRUEST Form of money? Why the sudden push?
Gold is where money goes when money has no credibility left!
Yes, you can put your million dollars in the bank at .006% or 60 bucks a year. You can buy a 6 month to 2 year CD for 1.25%. Seriously, is that so much better than gold?
What gold has that the others do not is a very real insurance value. It is insurance against inflation, hyperinflation and currency games as we see in China. It is great if you never need it for that, but when or if you do you will seriously regret not having it.
As the old meme goes, "Better to have it and not need it than not have it and need it."
Why do you all keep thinking so closed-minded that the only alternative to shiny-shit is a demand-deposit bank account ?
This is nonsense.
The only value of demand-deposit bank accounts is immediacy of access for spending, eg bill-payment, and FDIC insurance (USA), NOT for income.
Why don't you compare to brokerage CDs (FDIC insured) or US treasuries, foundation asset of the global financial system. If you had purchased any of these instead of shiny shit, then you would have had interest income AND capital gains, instead of zero income, capital losses, and extremely high transaction and storage costs.
"If you had purchased any of these instead of shiny shit, then you would have had interest income AND capital gains, instead of zero income, capital losses, and extremely high transaction and storage costs."
Interesting that you didn't mention land purchases. In my case, having paid-for acreage has been quite an investment - not that I plan to sell any time soon. Being 100% debt-free (having no financed obligations) is quite liberating.
And as a note - I don't think that mast ZH members that like PM's are paying someone else to store their metals.
I find your posts amusing, refreshing and caustic... in no particular order. I like them, so keep it up. The doom, gloom and constant gold infomercial called ZH is a turn off. Its nice to read your contrarian replies to the contrarian website.
Who is the strawman "you all" that can only choose between a bank account and physical gold? I'm certain even the most die hard prepper or gold bug may stockpile liquor or tobacco LOL. See, there are other options between gold and savings account.
Seriously though, I foresee a large move into CD's and Treasuries, the USD appreciating. None of that would surprise me.
Most likely a deflationary swing followed by a inflationary, end of FRN, swing. The only way to save USD is 12% + interest rate. But that would kill One bank and its puppet government. Yellen is no Volcker, the Fed is beyond saving, won't happen.
I can't move as fast. Timing is too risky for me. Its a game of musical chairs (perhaps just a shell game). I'm not going to be the last guy holding worthless Wiemark notes, err i mean treasuries.
So for me its gold, silver, paper cash, btc, physical assets, non USD stocks, some pre-ipo shares. Eggs all over the place, not one basket. But, I've still got a mortgage. When the mortgage is gone, I may try a game or two at your treasury casino.
Do they serve free drinks?
Thank you
Financial markets and economies are going into period of turmoil. US Treasuries continue to be a safe haven and will surge in price, LIKE TODAY, while also paying interest. :-)))
Yes invest in paper with a corrupt government that has 19 trillion in debt and counting? Not what I would call a "solid" investment at this point? you might get your payout, YOU MIGHT NOT! If its not in your hand its not yours! You aren’t as "bright" as you claim to be. Our government might last, it might not?
If the dollar loses its value, you’ll have a bunch of useless dollars? I would be very afraid of a BACKED currency appearing out of nowhere? CRUSHING the dollar. The dollar is fast becoming the worlds enemy because of the DIPSHITS we have at the helm. Be nimble Friend.
Not having all your eggs in one basket would be to include gold in your strategy, yes it might lose till the dollar self destructs, but I would not discount gold once it bottoms out. It is what it is, its real, true money. There is no substitute? Most importantly you hold it in your hand... Im referring to physical, not paper of course. WAKE THE FUCK UP? Hold on tight to your shiny Zimbabwe Dollars! I really think you dont get it at this point, or you do and you dont want anyone else to ?
See this, this is the actual value of what you are talking about? FUCK OFF TRAITOR! http://pricedingold.com/us-dollar/
I get it... THEY ARE TRYING TO HERD EVERYONE INTO TREASURIES TO TAKE THEIR CASH!!! Get ready for the payout that never comes, just like S.S. and everything else. REAL CROOKS HERE!
Keep relying on UNCLE SHAMs IOU's!
Think about a new "backed" currency.. Say its the SDR we have heard so much about? All paper currencies will evaporate overnight. I would be very careful being all in paper. The world is Fiat. NOT GOOD.
"Gold = where money goes to stop working to produce income, to rot and die."
you mean a bank account don't you? Gold only 'appears' to not be gaining in value when it is priced in dollars....in other currencies it is the winner over the last 12 months. When the dollar hits the wall, you will see just what gold is worth.
Why do you all keep thinking so closed-minded that the only alternative to shiny-shit is a demand-deposit bank account ?
This is nonsense.
The only value of demand-deposit bank accounts is immediacy of access for spending, eg bill-payment, and FDIC insurance (USA), NOT for income.