Still most read article. Huge volume – MT/Ed
Worldwide equity markets are a nuisance compared to worldwide debt markets. When you understand that derivatives (think leverage) all have interest rate components and have only seen falling yields the past thirty years. You better pay attention to the following chart. When this chart breaks the Fat Lady has sung and it is game over and I do mean over.
That is a six year topping pattern in the benchmark 10 year US Treasury Note. When that angled, complex pattern breaks down chaos will ensue globally. Examine what happened to the Yen when a similar pattern of HALF the duration broke down.
Harken back to 2008 when the real estate bubble popped. Everything tanked because real estate is illiquid and
everyone needed to raise capital and NO ONE could. Even the mighty GE had trouble rolling over debt. So ask yourself who is going to lend anyone money if rates start rising aggressively? Think about how much debt everyone is holding across the globe. Citizens, corporations, sovereign entities all have financing needs each and every day. Who will be the lender of last resort? Will everyone go to the FED and ask for a loan?
How many people managing money today have ever managed money in a runaway bond bear market? While the move in the late 1970’s was impressive the amount of leverage that existed in the financial system would not even register relative to today. That allowed Volcker to unleash his tightening madness.
How does gold factor into what we are about to see when that first chart breaks down? Again, in 2008 money rushed into the safe haven that is bonds. Now bonds become the source of panic? Where will money hide?
The supply and demand fundamentals for gold at this stage are already completely upside down relative to price. The price continues to follow the value of the yen relative to the dollar as we showed last year. And while some will have you believe that higher rates make gold even less attractive, they could not be more incorrect. When the bond bear comes gold will outperform and society as a whole is completely unprepared for the chaos that will unfold.
