Danger: Rising interest rates. The chart below shows the interest on the bellwether 10 year T-note. I noted a head-and-shoulders bottom on this chart (check out the red arrows). – Richard Russell of Dow Theory Letters
Fed money-printing scheme triggering bond price meltdown!
Since talk of new money-printing first surfaced a few weeks ago, 30-year bond yields have jumped sharply higher — from 3.46% to 4.32%. That’s a 25% surge in borrowing costs!
It’s the biggest interest rate rise in a year — and it’s showing no signs of slowing. Yields surged yesterday after a lousy auction of 10-year Treasury Notes. Then they surged AGAIN today after the sale of $16 billion in 30-year Treasury bonds bombed.
Ironically, this is exactly what Bernanke said would NOT happen:
In fact, the Fed chief’s main excuse for printing $600 billion over the next eight months was that the money was needed to buy up bonds and LOWER long-term interest rates!
But just as we warn in our online presentation, global investors in U.S. bonds are recoiling in horror — and for good reason:
They know that the Fed money-printing will drive the REAL value of their bonds down sharply!
No wonder they’re dumping U.S. bonds, driving the prices lower!
And no wonder they’re demanding higher yields, driving long-term interest rates higher!
Moreover, bonds are just ONE of the five asset classes directly impacted by the Fed’s new money-printing scheme. The others are:
* Currencies. As the Fed drives down the value of the dollar, it drives UP the value of major foreign currencies. Meanwhile, right now — TODAY — the Fed’s money printing plans are wreaking havoc at the G-20 meetings in Seoul, South Korea.
The main problem: Foreign nations are concerned that this massive supply of newly-created dollars will flood into their economies and drive their currencies through the roof!
* Precious metals. Despite a correction that began last night, gold and silver are still in massive, long-term bull markets.
* Agricultural commodities. Since QE2 talk began, commodities have been on a tear. They’re rising even faster than bonds are falling.
* Stocks. QE2 has mixed impacts on the U.S. economy and stocks. But for emerging markets, the combination of strong domestic growth and a rapid influx of U.S. dollars has been extremely positive.
Lots of opportunity!
Best wishes,
Mike Larson
Go to our online presentation how to trade & invest in this environment. This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.