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.
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Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research
(13 votes)
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To wit, my CDN cash holdings have lost 25% of their value against FRN(USD) but my PM holdings have risen in reverse, preserving valuation in CAD against FRN
FRN = Fed Reserve Notes.
CAD has gone down, shiny-shit has not gone up.
This is a currency issue, not a shiny-shit issue.
If you live in Canada and spend CAD (I live there summers), and if you had invested in US Treasuries instead of shiny-shit, then you would have had interest income AND huge capital gains in treasuries and currency exchange rate due to crashing CAD.
You're right from only one perspective and that is the paper gold market is manipulated to depress the value of gold in terms of dollars. Only makes sense as a long term investment and to wait for the manipulation to stop and a dollar collapse.
to bad you didn't buy gold with the Loonie when it was par to the dollar....by gosh you'd be up more than 30% in dollar terms.
Interesting take on gold! My take:
GOLD = where the value of work goes into hibernation for as long as it takes for a particular fiat currency to die as a useful tool for commerce.
Your strategy results in decades of lost income from money that could earn income but instead is buried in inert metal
in addition to huge capital losses from collapsing price of shiny shit.
So you think stocks are going to do better than gold this year? LOL
Tell that to my In Laws who lost appx 50% of their retirement in the markets in '08.
As to the shiny hucksters, they are doing what they should be. They are in the shiny biz, it ain't rocket science. You gotta advertise and talk up the product if you want to eat.
Sounds like your in-laws went into the equity casino, not surprised they lost money in 08.
I don't do equities at all ever because they are far too volatile and risky, however, if your in-laws had held on to their equities from 2008 rather than selling in the crisis, then they would have earned huge gains from ZIRP and QE.
I invested in bonds and rode the ZIRP and QE elevator UP UP UP - I earned once in a century (or 2 or 3) profits :-))
those are once this century profits (if you bought in 2000 and sold now) but they were duplicated twice in the last two decades of the twentieth and the first two years of this one:
u.s. treasury rates went from 16% to 8% from 1981 to 1986 and from 10%+ in 1987 to 5% in 2002.
you didn't say when you bought but if it was at the crisis in late 2008 you're flat or still underwater.
https://www.treasury.gov/resource-center/data-chart-center/interest-rate...
p.s. bonds were a tad risky from 1948 to 1981 when the long treasury went from 2% to 16%. you got the chance to get early thirties (or 2008) equity returns multiple times.
Depends on why you are holding the gold. If you are holding it for the time when capital gains don't mean fuck anymore, the likelihood that your "account" holdings are worth fuck then too. But gold in posession will be.
All things being equal, almost knowone is hyping gold, at least that makes it to the general population. Its almost a nonexistent topic among people.
The biggest gold fanatics seem to be the gold bashers, far beyond any tin foil hat gold bug.
Its about as crazy as talking about poop, and how you just can't stand the aftertaste. Quit putting it in you mouth!
Shiny-shit hucksters are omnipresent in ads all over web sites, tv, radio, email spam, etc.
"To wit," not "To whit."
To whit to whoo !
Too whasted to whoo the girl with tattoo.
To wit.
shaky spelling but the comments about the bond market in a global depression are likely true.
i also think you got a bad rap on 9-11, wc. waterboard cheney and see what he gives up.