Markets are going to become more volatile
Thursday, 07 March 2013 | 04:45 AM ET
Prepare Now for Debt maggedon
Continued from The Worthlessness of U.S. Public Debt
The outcome of a sudden change in inflation perception is dramatic. What is very likely to happen, unfortunately, is that the risk-reward model that has reigned since the beginning of the early 1980s bull market will invert on itself. Money that was once “safe” to move from bonds to stocks and back to bonds will find no quarter in either.
At first, rising interest rates will prompt money managers to move out of stocks and into debt. But they won’t want to buy long-dated debt already on the market. Why? Because rising bond rates will mean that newer debt will pay progressively higher yields (in effect, at a lower cost).
The price valuation of long bonds will begin to crater. As bond sellers flood into the market to dump their paper first, rates will rise even faster. More >
Continued from “Why Didn’t Anybody See It Coming?”
The Federal Reserve has publicly stated that it is in the bond market to stay. The rate-setting committee of the Fed, the FOMC, recently recommitted to keeping the interest rate at virtually zero until 2015. Bernanke himself is hinting he will step down in 2014. That kind of runway gives the central bank time to continue to tinker around the edges of its long-standing policy of vacuuming up new U.S. debt, thus supporting demand and keeping bond prices high.
The 30-year Treasury started out 2012 at just under a 3% yield. It has remained within a handful of basis points, over or under, all year until now. The 10-year Treasury has done a similar dance below the 2% mark.
Meanwhile, the annualized, seasonally adjusted Consumer Price Index (CPI) is at 2%. Consider for a moment what that really means. Investors holding 10-year More >
A few years from now, when you look back at the stock and bond market action since the election, I can predict with near-certainty that one phrase will reverberate in your mind: “Why didn’t anyone see it coming?”
Of course, the massive shift in risk ahead is patently obvious today and everyone should realize it right now. To put it as plainly as possible, the bond market is primed for an epic “contraction”, such as we have not seen in many decades.
The 30-year bull market in bonds continues with investors investing over a trillion dollars more despite the record low rates. Washington is running a trillion-dollar deficit for the fourth year in a row yet they have experienced no problem borrowing at lower and lower rates.
You can and should be taking steps to prepare yourself for what is to come. To avoid taking action, putting on
Stocks Mixed At Start of Week
Monday, 26 November 2012 3:00 PM ET How to position your portfolio amid fears over the fiscal cliff, with Bill Spiropoulos, Corestates Capital Advisors; Lee Eugene Munson, Portfolio Asset Management; and CNBC’s Mary Thompson, Steve Liesman and John Harwood.