A while ago I shared with you a chart showing a reverse-head-and-shoulders pattern for 30-year Treasury bond yields that strongly suggested an acceleration up to around 4.3% if there was a clear break of the 3.22% level.
We got that break in spades last week.
Here’s the chart of that break out.
I’ve been warning for some time now that we’re likely get a shot at the fixed income trade of the decade. Catching a spike like this, which could trigger a stock and real estate crash that then brings yields back down lower than ever before, would be a boon to any fixed-income investor. This is one of those “back the truck up and load it up” kind of opportunities.
Ten-year Treasury bond yields hit their lowest point back in 1941. Then they climbed to a high of 15.2% in early 1981… and have fallen to the recent all-time low of 2.1% in June 2016.
And 30-year yields spiked from 4.9% to 6.7% into the 2000 bubble top, and from 4.5% to 5.3% into the 2007 top.
Wall Street has declared this the end of the great Treasury and bond bull market.
I don’t agree. Nor does my favorite economist, Dr. Lacy Hunt, who’s speaking at our Irrational Economic Conference in two weeks’ time.
He and I know the secret…
The secret is that we’ve yet to hit the deflationary stage of the greatest debt and financial asset bubble in history When that final crisis hits, 30-year Treasury yields could plunge to sub-2.0%, likely bottoming between late 2021 and late 2022…
That’s the fixed income trade of the decade: Buying 30-year Treasuries at around 4.0% to 4.3% will be a great short-term play as they will then, within a few years, fall to at least 2.1% again. Selling bonds at that low and buying stocks and commodities, could even become the trade of the century, especially into 2036 for stocks and 2040 for commodities!
But what happens first has been a major theme of another featured speaker at our conference, David Stockman. He sees the tax cuts as ramping up deficits that are already out of control in boom periods to $1.2 trillion next year and much higher when we finally fall into a recession or financial crisis…
Such heightened federal deficits, unprecedented debt levels that never deleveraged, continued falling demographic trends, and bubbles in almost everything beyond anything in history all point to a final and worse crisis just ahead.
Like the Great Depression, that is where you’ll see the lows in risk-free long-term yields for at least 50 years to come… WOW!
Everyone acts like the Fed can now engineer a soft landing after the most aggressive money printing and bubble creation in history… NOT a chance in hell.
Rising short rates by the Fed are spilling into higher long-term rates, tax cuts, and past stimulus are finally creating higher growth and inflation. Emerging country debt is getting into trouble fast – from Venezuela to Turkey to Iran, with China the next and worst.
Emerging countries are selling dollars and T-bonds to bolster their falling currencies. Rates are rising with inflation and growth causing yields to rise and bonds to fall.
The Fed is not only going to have to issue $1.2 trillion new bonds over the next year, but they are going to sell $600 billion of the trillions they have accumulated since early 2009.
A “yield squeeze” as Stockman calls it – which is more supply and selling just as inflation finally starts to accelerate, as it typically does in the late stage of a boom and rally – along with Fed tightening could trigger stock and real estate crashes.
But before jumping on this fixed income trade of the decade (and century on the other side!), let’s wait for the spike to play out and then start loading up on long-term Treasuries and AAA corporate bonds.
These were the two sectors that went up during the entire Great Depression from 1930 to 1941 while risk assets from stocks to real estate to commodities went down…