The global bond markets are “ridiculous” as long as most people have confidence in the central banks. Stocks will continue to climb and precious metals will continue to move sideways.
It is mind boggling to see where the world’s bond markets are trading. No bond market is more ridiculous than JGB (Japanese Governments Bond), which are trading at 57 basis points with a 3% annual inflation rate. Most people have great difficulty with the concept of deflation. We haven’t experienced much deflation in the world because we have the printing press.
Treasuries look absurd. With the recent bond rally, everyone short bonds has been squeezed out. However, one of these days, the world bond markets will be lost by the central banks. I cannot say when this will happen or where it will start, but I am certain it is going to happen sometime, somewhere.
Deflation has become a code word for depression. How are we going to have a depression while these guys are printing money? Such a program of printing money can last for a long time.
The world’s central banks, by printing money, are ruining the global economy. Japan and the United States are basket cases. Europe has no growth. China has high levels of non-performing loans, but before the Chinese economy collapses, the Chinese will start their own form of QE, that’s the first place that is going to cause trouble. Predicting the future, however, is difficult, since. The world has never been in a place where all the central banks are conjuring up confetti cash out of nowhere.
Unlike in 2008, a lot of the debt problems have been transferred to governments. The central banks for the stock bubble, which has been caused by printing money. The central banks then took rates too low, which led to a housing bubble, extensive misallocation of capital, mostly into the bond markets, and the transformation of the financial markets into return-free risk markets.
The Fed says the second quarter GDP is going to be better. This is what these guys believe, The Fed believes this. The amazing fact is that people have confidence in the central banks after all the mistakes they’ve made and all the problems they’ve rained down on everyone.
When will it all come crashing down? There is nothing at the moment that is going to take the Fed out of the picture. Therefore, the Fed will continue to print money, albeit at a slightly slower rate, and stocks will continue to rise. I believe that we will have to wait until the Fed overdoes it and the bubbles burst. The Fed tapers and stocks rise, but at some point there is going to be an “aha moment,” and then some version of a crash.
Gold And Silver
In terms of gold and silver, gold is an expression of a lack of confidence in your central bank, your government. I see a long list of reasons why you want to own gold, but the masses in America and Europe do not see those reasons.
The Indians and Chinese do. One day, the attitude to inflation is going to change, and gold is going to have a big run up. Today, the price action dominates the fundamentals in the metals a lot of the time. I’m bullish on gold, but it keeps going sideways. Almost the entire financial field is bearish on gold for what I call ridiculous reasons, but the economy is not growing and at some point the printing of money is going to lead to a major crash and, with it, gold and silver will skyrocket.
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