BALTIMORE – “Investors Prepare for Inflation,” warned the front page of The Wall Street Journal on Wednesday.
“Rising Treasury Yields Ripple Through Markets,” it added on Thursday.
“U.S. Treasurys lead bonds sell-off,” the Financial Times piled on, “as investors fear a faster retreat from crisis stimulus.
These headlines may herald the biggest financial turnabout in 35 years.
Stocks are hitting record highs. But bonds are slipping.
For three and a half decades, inflation and interest rates – which tend to travel in the same direction – have gone down.
Now, they are going up.
The yield on the 10-year Treasury note – an important benchmark for borrowing costs in the economy – fell to 1.37% on July 8, 2016.
“Another drop in bond prices sent the yield of the 10-year Treasury note above 2.5%,” says the Journal.
But what does it mean?
Shaping up in front of us is a delicious farce, a comedy of errors and ignorance, like The Three Stooges, but without the “nyuk, nyuk, nyuk.”
Fed chief Janet Yellen either didn’t see the bond sell-off coming… or she didn’t think it was worth worrying about.
There is nothing “flashing red,” she said in her last congressional appearance. “Or even orange.”
We mean, from a slapstick point of view.
Ms. Yellen, then at the San Francisco Fed, didn’t see the crisis of 2008 coming, either. Instead, she turned her back and got whacked on the tushy.
Then, when the crisis hit, she had no idea what she was doing in the hysteria that followed, so she deferred to her fearless leader at the time, the hilarious Ben Bernanke.
This clown later modestly described himself as having the “courage to act.”
The markets were correcting the damage done by excess credit provided by Greenspan, Bernanke, and Yellen, et al. But instead of having the cajones to let the correction happen, Bernanke panicked… giving it even more credit.
To the cheers of practically every investor, householder, politician, and economist, he slashed interest rates and bought up bonds with newly minted digital cash (QE).
That is, he was the quack who gave the diabetics what they wanted: more sugary donuts.
And now, the world economy may be going into a coma… brought on by $233 trillion worth of debt – nearly all of it desperately dependent on Bernanke’s and Yellen’s absurdly low interest rates.
As for the alarming signal delivered by the bond markets this week, we’d put it in the vermillion category.
Bond investors are generally more professional and more experienced than stock investors; they are the so-called adults in the room.
So, as the stock market continues to punch holes in its ceiling, bond prices are taking the down elevator. And bond yields – along with borrowing costs throughout the economy – are going up.
In other words, the trend that has marked practically our entire adult lives – the sweet “stimulus” that has fattened almost every price, business, loan, and financial hope on the entire planet – is turning sour.
Central banks, via various QE programs, have put out some $15 trillion in extra credit so far this century. But central banks give… and they take. What makes it funny is that they almost always do so at the wrong time for the wrong reason.
Now, with more people owing more money than ever before in history, central banks in the U.S., the eurozone, and China are either cutting back on their bond buying or shrinking the stockpiles of bonds they already own.
The Fed, for example, is on schedule to reduce the bonds on its balance sheet at a rate of $600 billion a year by the end of 2018.
Jens Weidmann, a German member of the European Central Bank’s governing council who is expected to take over as its president next year, has called for an early end to QE in Europe.
And China is not only backing away from money printing, it is also signaling it may not be keen on buying more U.S. debt, either.
That leaves the Bank of Japan as the only major central bank still pumping in liquidity. But that last major source of worldwide credit seems to be tightening up.
Reports the Financial Times:
[T]he Bank of Japan trimmed purchases of 10- to 25-year debt by 10 billion yen to 190 billion yen [$1.7 billion]… the first reduction in the sector since December of 2016.
And “if the world’s most assiduous user of quantitative easing is itself easing back on the use of the proverbial punchbowl,” wonders an analyst at British broker IG, will this mean that the others “start to shift to a higher gear, earlier than previously thought?”
And we will add a wonder of our own: Could the central bankers have set up a better pratfall?
They lured the whole world to their party – promising free booze and canapés. And now, they’re not only putting away the liquor and turning off the lights, they’re setting the curtains on fire.
By Jeff Brown, Editor, The Near Future Report
Some of the most common questions being asked right now concerning bitcoin and cryptocurrencies are, “Have we peaked?” or, “Am I too late to get in?”
And my answer is a simple one… We are nowhere close to the top. I’ll get to that more in a bit.
One of the most valuable things that I do with my research is travel. I’ve been to so many blockchain-related conferences, events, dinners, meetups, investor meetings, etc. that I can’t keep count.
The reason that I make the effort comes down to one simple thing… perspective.
I try to look at technologies and investment ideas from as many angles as possible… and always objectively. A discussion with an engineer will be different than one with an asset manager. The message from a CEO will differ from that of a product manager.
Having these discussions enables me to develop a more complete picture on whatever I’m researching.
Many blockchain industry insiders feel that we are frothy right now in many digital assets. It’s a natural feeling, too, after coming so far so quickly over the last 12–18 months.
Yet today, the entire market capitalization of all digital assets, cryptocurrencies, and tokens, is $718 billion.
Now, that might seem like a lot; but consider this… the gold market alone is more than $7 trillion.
Or how about this: Apple’s market capitalization is currently $893 billion. One company’s market cap is larger than that of an entire industry. While Apple may be an outlier, this is still a striking comparison.
We only recently saw the launch of futures products for bitcoin on three major exchanges. This all just happened in the last 60 days.
There are still no ETFs (exchange-traded funds) available to investors to gain exposure to cryptocurrencies and digital tokens. Hopefully, we’ll see these products get launched in 2018.
The market size is still so small that many large institutional funds are still not invested at all. They simply can’t put enough money to work because there just isn’t enough liquidity for them to participate.
So how will we know when the run-up in cryptocurrencies and tokens has hit its peak?
I heard a great comment from an executive at a recent conference that I attended, “The peak will come when pension funds start allocating to bitcoin.”
Naturally, pension funds tend to be the most conservative from an investment perspective. This means that they will probably be the very last to gain exposure to digital assets as an investment vehicle.
2018 is going to be another fantastic year for best-in-class cryptocurrencies and digital tokens. As they become more accessible, more widely tradable, available through ETFs, and eventually, an asset class for large institutional funds, the prices will go higher.
And when we read on the front page of The Wall Street Journal that the Illinois State Employees’ Retirement System pension fund has allocated a certain percentage of its assets to cryptocurrencies, then we’ll know that the growth in digital assets has leveled off.
Until then… we have a long way to go.
– Jeff Brown
P.S. The technology behind cryptocurrencies will revolutionize our society the way the internet did more than twenty years ago. Smart investors stand to make 21 times their money over the next few years. But 99% of investors are so distracted with bitcoin that they are missing the bigger picture. You don’t have to be one of them.
I’ve uncovered three ways to profit safely from the crypto explosion without ever downloading a digital wallet or logging onto a cryptocurrency exchange. Click here to see how.
China Turns Its Back on U.S. Bonds
As Bill showed, there appears to be a sell-off happening in U.S. bonds. Now, a new detail for concern. China, one of the biggest purchasers of U.S. Treasuries, is turning its back on U.S. bonds.
The Marijuana Boom Is Here
Recreational marijuana is now legal in California, the world’s sixth-largest economy. Casey Research analyst Nick Giambruno shows why NOW is the time to stake a claim in this booming industry.
Facebook’s War on Fake News
Recently, Bill Bonner Letter coauthor Dan Denning showed how big technology companies are purposefully hijacking users’ minds. Now, Facebook is going to “do something” about it. But it could come at the expense of its bottom line.
Today, a mixed mailbag. Some praise for Bill… and a few jabs at other readers…
This is my first piece of feedback after almost two years of your letters. I like your writing style and the humor used in your presentation. You come across as an intelligent guy. You are perceptive and usually, I find you hit the nail on the head. But… it seems that you are fixated on problems and delving into those in various levels of detail. Certainly, not a bad thing, as one can’t solve a problem unless it is fully understood.
What I don’t like – I can’t recall very many times that you have offered thoughtful solutions to problems, or even a partial one. Often, you come across as all is lost; we are doomed in America. Granted, we all know that the chances of having a change or solution that has roots in the civilian sector isn’t likely to survive.
But I damn sure know enough about most of the problems and I damn sure don’t have your pulpit. So how about you start cranking out solutions and myself and other readers start sending those to the politicos and who knows, maybe a few slip through the cracks and something happens. Sure, far-fetched, but better than making us all experts on the problems in America.
– David P.
I am immensely entertained by readers attacking other readers’ intelligence by displaying their own ignorance. Hilarious, but not funny, of course. Your publication is to help people navigate Wall Street for maximum gain, right? So I suppose most of your readers are investors.
They seem to agree with you that the Swamp cannot be drained. Why, then, are they so violently anti-Trump? The economy and stocks are booming, their taxes are lower, and their portfolios are healthier than ever. So if you all are content to capitulate to the inevitable Deep State because the alternative would be “people are much more equal in income – but much more dead, too,” then what on earth are you wallowing on about?
– Erich K.
You have my sympathies! It must be annoying to be sent nonsense from arrogant, self-styled “intelligent readers.” I know a few quite intelligent people and, while they all have many and varied interests, I’ve seen no sign that any of these people are averse to making money. Hopefully it feels better to know that at least we unintelligent readers greatly appreciate your grasp on reality and the humor in your delivery. Carry on.
– Al R.
I’m an old man now… I regret not having heard or read statements from Bill Bonner and partners before NOW. But there is another old saying: Better late than never!
– Weldon S.