Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

U.S. Bonds

The U.S. Treasury department issues debt obligations, including long-term bonds. U.S. bonds range in length, from short-term to very long-term. U.S. bonds are debt obligations by the government. The government issues U.S. bonds for current spending needs, with the intention to pay back the total plus interest over the life of the debt instrument. U.S. bonds are quite important as many other interest bearing securities are priced off this heavily traded security. Since many investors around the world watch the rates of U.S. bonds for signs of economic strength or weakness, it is important for all investors to be aware of the interest rate environment.

What a Loan Officer Would Say to the U.S. Government

By for Profit Confidential

Does the Size of Our National Debt Really Matter AnymoreFor a moment, consider yourself a loan officer at a major bank. Would you approve a loan for a customer who says they earn $1,000 a month, spend $1,300 a month, and don’t have a job? They also tell you they have unpaid debts of $17,000.

I don’t think anyone would authorize that kind of loan because the chances of getting the money back are next to zero. The individual spending more than he earns is a prime example of a financial disaster waiting to happen. It is unsustainable living; when someone does this, they break the most basic principles of Personal Finance 101.

So why does the U.S. government get away with it?

The United States Department of the Treasury, Bureau of the Fiscal Service reported the budget deficit for the month of February was $194 billion. The U.S. government received $144 billion in revenues and spent $338 billion; the government spent 134% more than what it earned. (Source: Bureau of the Fiscal Service, March 14, 2014.)

So far for fiscal year 2014 (which began in October of 2013), the U.S. government has incurred a budget deficit of $380 billion on revenues of $1.10 trillion and expenses of $1.48 trillion. Since the beginning of its current fiscal year, the government has been spending 34% more than what it takes in.

The U.S. national debt, which has now surpassed $17.0 trillion, has skyrocketed since the Credit Crisis of 2008.

There are two important facts about our rising national debt that don’t get a lot of mainstream attention (and I certainly don’t hear the politicians talking about them):

Point #1: … Read More

Why I Fell Asleep Last Night During the State of the Union

By for Profit Confidential

The Borrower of Last ResortLast night started out like every other State of the Union address I’ve seen…

The President told us all the good stuff about the U.S. economy, like how American corporate profits are at a record high, how the stock market is at record highs, how millions of new jobs have been created since the Credit Crisis of 2008, how the housing market is turning around, and on and on.

Like a good old politician, Obama spun the facts to give the viewer the impression his Administration has done a great job at turning the U.S. economy around.

What Obama, who now has a very low 43% job approval rating (Source: CNN Breaking News alert, January 28, 2014.), didn’t say about the U.S. economy—and which no other politician likely would—is that:

None of his 2013 State of the Union “priorities” made it through Congress.

American corporations ended 2013 with the slowest earnings growth rate since 2009.

The stock market has become a Federal Reserve-induced bubble.

The majority of jobs created in the U.S. economy since the Credit Crisis have been in the low-paying sectors of the retail and service (restaurant) sectors.

A record 47.41 million Americans, or 23.05 million households, in the U.S. economy are using some form of food stamps (Source: United States Department of Agriculture, January 10, 2014.)

The number of first-time home buyers in the housing market is going the wrong way. In December, first-time home buyers accounted for a near-record low of only 27% of all the existing-home sales transactions. (Source: National Association of Realtors, January 23, 2014.)

Midway through the speech, I nodded off. I … Read More

Burning Money at the Rate of $113 Billion a Month; How Can They Stop Printing?

By for Profit Confidential

Why Our National Debt Will Double in the Years AheadIn the month of November, the U.S. government registered a budget deficit of $135 billion. Over the course of the month, it spent $318 billion and only took in $182 billion. So far for the fiscal year 2014, which began in October, the U.S. government has registered a budget deficit of $227 billion; that’s an average of $113.5 billion a month so far this fiscal year. (Source: Department of the Treasury; Bureau of Fiscal Service, December 11, 2013.)

In the same period a year ago (October and November of 2013), the U.S. government registered a budget deficit of almost $300 billion. (I ‘m certain that some politician comparing the two periods will say, “Look, our budget deficit situation is getting better!”)

Whenever the U.S. government registers a budget deficit, it has to go out to the market and borrow money to pay for its expenses and obligations. This increases our national debt, which has skyrocketed over the past few years due to consecutive years of extremely large budget deficits. As of December 10, our national debt stood at $17.2 trillion. (Source: Treasury Direct web site, last accessed December 12, 2013.)

I believe our national debt will double to $34.0 trillion in the years ahead.

Here’s my reasoning:

According to the Congressional Budget Office’s projection, between 2014 and 2018, the total U.S. budget deficit of the U.S. government will add up to about $2.4 trillion. This means that by the government’s own estimates, the national debt will hit about $20.0 trillion in four years. (Source: The Congressional Budget Office, May 2013.)

But I think the budget deficits the U.S. government will … Read More

Why the Federal Reserve Can’t Stop Printing

By for Profit Confidential

The strong jobs market report last week started the chatter again that the Federal Reserve would start to reduce the pace of its quantitative easing program. Some have said the Fed will reduce the amount of its asset purchases as early as December, while others are saying the quantitative easing will start to diminish by March 2014.

I have a different opinion: I believe the Federal Reserve can’t stop quantitative easing, because the market has become so dependent on it. If the Fed does go ahead with a pullback on money printing, the consequences will not be pleasant.

I made a very similar prediction last time when we heard a significant amount of “noise” about the Federal Reserve pulling back on its asset purchases. My predictions were right, and nothing has changed since then. The Federal Reserve continues to buy $85.0 billion worth of U.S. bonds and mortgage-backed securities (MBS) a month.

Please see the chart below to see why I believe the Federal Reserve just can’t walk away from quantitative easing without causing massive damage.

TYX 30-Year T-Bond Yield Chart

Chart courtesy of www.StockCharts.com

In May, when the Federal Reserve hinted it might be reducing the pace of its asset purchases, we saw a spike in bond yields with the 30-year U.S. Treasury rising from about 2.8% to as high as 3.9% in a very short period of time. Then we heard the Fed would not be tapering as was expected and bond yields settled and started trading in a range. Now, with the jobs market report perceived as good (first time we created over 200,000 new jobs in months), bond yields started rising … Read More

What Happens to the Market When Stock Buyback Programs Stop

By for Profit Confidential

Stock Buyback ProgramsThe International Monetary Fund (IMF) expects the global economy to increase by 2.9% this year and 3.6% in 2014—forecasts which I believe are too optimistic. Why?

First of all, we have the Japanese economy, the third-biggest in the global economy, suffering an economic slowdown. Tertiary industry activity (activity in the service businesses) slowed in September from a month ago. (Source: Japan Ministry of Economy, Trade and Industry, November 12, 2013.)

Then there’s Germany, the fourth-biggest economy in the global economy. Once believed to be immune to the economic slowdown in the eurozone, seasonally adjusted manufacturing output in the country declined 0.8% in September from August. As of September, year-to-date manufacturing output in the German economy has increased only 1.2%—a much slower growth rate than in the same period of 2012. (Source: Destatis, November 8, 2013.)

Earlier this month, in a statement about its monetary policy decision, the central bank of Australia said, “In Australia, the economy has been growing a bit below trend over the past year and the unemployment rate has edged higher. This is likely to persist in the near term… Public spending is forecast to be quite weak.” (Source: “Statement by Glenn Stevens, Governor: Monetary Policy Decision,” Reserve Bank of Australia, November 5, 2013.)

To fight the economic slowdown in the country, the Reserve Bank of Australia is using easy monetary policy measures. The central bank has reduced its benchmark interest rate in the country by more than 40% since the beginning of 2012. The cash rate, the overnight money market interest rate, sits at 2.50% compared to 4.25% in early 2012. (Source: Reserve Bank of Australia … Read More

« Older Entries

What a Loan Officer Would Say to the U.S. Government

By for Profit Confidential

Does the Size of Our National Debt Really Matter AnymoreFor a moment, consider yourself a loan officer at a major bank. Would you approve a loan for a customer who says they earn $1,000 a month, spend $1,300 a month, and don’t have a job? They also tell you they have unpaid debts of $17,000.

I don’t think anyone would authorize that kind of loan because the chances of getting the money back are next to zero. The individual spending more than he earns is a prime example of a financial disaster waiting to happen. It is unsustainable living; when someone does this, they break the most basic principles of Personal Finance 101.

So why does the U.S. government get away with it?

The United States Department of the Treasury, Bureau of the Fiscal Service reported the budget deficit for the month of February was $194 billion. The U.S. government received $144 billion in revenues and spent $338 billion; the government spent 134% more than what it earned. (Source: Bureau of the Fiscal Service, March 14, 2014.)

So far for fiscal year 2014 (which began in October of 2013), the U.S. government has incurred a budget deficit of $380 billion on revenues of $1.10 trillion and expenses of $1.48 trillion. Since the beginning of its current fiscal year, the government has been spending 34% more than what it takes in.

The U.S. national debt, which has now surpassed $17.0 trillion, has skyrocketed since the Credit Crisis of 2008.

There are two important facts about our rising national debt that don’t get a lot of mainstream attention (and I certainly don’t hear the politicians talking about them):

Point #1: … Read More

Why I Fell Asleep Last Night During the State of the Union

By for Profit Confidential

The Borrower of Last ResortLast night started out like every other State of the Union address I’ve seen…

The President told us all the good stuff about the U.S. economy, like how American corporate profits are at a record high, how the stock market is at record highs, how millions of new jobs have been created since the Credit Crisis of 2008, how the housing market is turning around, and on and on.

Like a good old politician, Obama spun the facts to give the viewer the impression his Administration has done a great job at turning the U.S. economy around.

What Obama, who now has a very low 43% job approval rating (Source: CNN Breaking News alert, January 28, 2014.), didn’t say about the U.S. economy—and which no other politician likely would—is that:

None of his 2013 State of the Union “priorities” made it through Congress.

American corporations ended 2013 with the slowest earnings growth rate since 2009.

The stock market has become a Federal Reserve-induced bubble.

The majority of jobs created in the U.S. economy since the Credit Crisis have been in the low-paying sectors of the retail and service (restaurant) sectors.

A record 47.41 million Americans, or 23.05 million households, in the U.S. economy are using some form of food stamps (Source: United States Department of Agriculture, January 10, 2014.)

The number of first-time home buyers in the housing market is going the wrong way. In December, first-time home buyers accounted for a near-record low of only 27% of all the existing-home sales transactions. (Source: National Association of Realtors, January 23, 2014.)

Midway through the speech, I nodded off. I … Read More

Burning Money at the Rate of $113 Billion a Month; How Can They Stop Printing?

By for Profit Confidential

Why Our National Debt Will Double in the Years AheadIn the month of November, the U.S. government registered a budget deficit of $135 billion. Over the course of the month, it spent $318 billion and only took in $182 billion. So far for the fiscal year 2014, which began in October, the U.S. government has registered a budget deficit of $227 billion; that’s an average of $113.5 billion a month so far this fiscal year. (Source: Department of the Treasury; Bureau of Fiscal Service, December 11, 2013.)

In the same period a year ago (October and November of 2013), the U.S. government registered a budget deficit of almost $300 billion. (I ‘m certain that some politician comparing the two periods will say, “Look, our budget deficit situation is getting better!”)

Whenever the U.S. government registers a budget deficit, it has to go out to the market and borrow money to pay for its expenses and obligations. This increases our national debt, which has skyrocketed over the past few years due to consecutive years of extremely large budget deficits. As of December 10, our national debt stood at $17.2 trillion. (Source: Treasury Direct web site, last accessed December 12, 2013.)

I believe our national debt will double to $34.0 trillion in the years ahead.

Here’s my reasoning:

According to the Congressional Budget Office’s projection, between 2014 and 2018, the total U.S. budget deficit of the U.S. government will add up to about $2.4 trillion. This means that by the government’s own estimates, the national debt will hit about $20.0 trillion in four years. (Source: The Congressional Budget Office, May 2013.)

But I think the budget deficits the U.S. government will … Read More

Why the Federal Reserve Can’t Stop Printing

By for Profit Confidential

The strong jobs market report last week started the chatter again that the Federal Reserve would start to reduce the pace of its quantitative easing program. Some have said the Fed will reduce the amount of its asset purchases as early as December, while others are saying the quantitative easing will start to diminish by March 2014.

I have a different opinion: I believe the Federal Reserve can’t stop quantitative easing, because the market has become so dependent on it. If the Fed does go ahead with a pullback on money printing, the consequences will not be pleasant.

I made a very similar prediction last time when we heard a significant amount of “noise” about the Federal Reserve pulling back on its asset purchases. My predictions were right, and nothing has changed since then. The Federal Reserve continues to buy $85.0 billion worth of U.S. bonds and mortgage-backed securities (MBS) a month.

Please see the chart below to see why I believe the Federal Reserve just can’t walk away from quantitative easing without causing massive damage.

TYX 30-Year T-Bond Yield Chart

Chart courtesy of www.StockCharts.com

In May, when the Federal Reserve hinted it might be reducing the pace of its asset purchases, we saw a spike in bond yields with the 30-year U.S. Treasury rising from about 2.8% to as high as 3.9% in a very short period of time. Then we heard the Fed would not be tapering as was expected and bond yields settled and started trading in a range. Now, with the jobs market report perceived as good (first time we created over 200,000 new jobs in months), bond yields started rising … Read More

What Happens to the Market When Stock Buyback Programs Stop

By for Profit Confidential

Stock Buyback ProgramsThe International Monetary Fund (IMF) expects the global economy to increase by 2.9% this year and 3.6% in 2014—forecasts which I believe are too optimistic. Why?

First of all, we have the Japanese economy, the third-biggest in the global economy, suffering an economic slowdown. Tertiary industry activity (activity in the service businesses) slowed in September from a month ago. (Source: Japan Ministry of Economy, Trade and Industry, November 12, 2013.)

Then there’s Germany, the fourth-biggest economy in the global economy. Once believed to be immune to the economic slowdown in the eurozone, seasonally adjusted manufacturing output in the country declined 0.8% in September from August. As of September, year-to-date manufacturing output in the German economy has increased only 1.2%—a much slower growth rate than in the same period of 2012. (Source: Destatis, November 8, 2013.)

Earlier this month, in a statement about its monetary policy decision, the central bank of Australia said, “In Australia, the economy has been growing a bit below trend over the past year and the unemployment rate has edged higher. This is likely to persist in the near term… Public spending is forecast to be quite weak.” (Source: “Statement by Glenn Stevens, Governor: Monetary Policy Decision,” Reserve Bank of Australia, November 5, 2013.)

To fight the economic slowdown in the country, the Reserve Bank of Australia is using easy monetary policy measures. The central bank has reduced its benchmark interest rate in the country by more than 40% since the beginning of 2012. The cash rate, the overnight money market interest rate, sits at 2.50% compared to 4.25% in early 2012. (Source: Reserve Bank of Australia … Read More

Madoff’s Ponzi Scheme Looks Like a Joke Compared to This

By for Profit Confidential

Madoff’s Ponzi Scheme Looks Like a Joke Compared to ThisThe “Bernie” Madoff name became famous while the stock market was falling during the credit and financial crisis. He was responsible for running one of the biggest Ponzi schemes in U.S. history—if I recall correctly, it was a $65.0-billion scheme. But as the scam got bigger, Madoff couldn’t go on. He was caught, prosecuted, and sentenced to more than 100 years in jail.

What did we learn from the Madoff ordeal? At the very least, we learned Ponzi schemes eventually become impossible to hide, no matter how smart and cunning the perpetrator.

Wednesday of this week, we learned that the Federal Reserve’s Ponzi scheme of printing paper money and giving it to the government via the purchase of U.S. Treasuries will go on.

While the Fed says it wants to keep the “stimulus” going until the economy gets better, as I have written in these pages many times, the Fed cannot stop printing because if it did stop, three things would happen: 1) the stock market would collapse; 2) housing prices would fall; and 3) the government would have no real buyer for its debt (especially in light of China and Japan pulling back on buying U.S. Treasuries).

Madoff’s $65.0-billion Ponzi scheme is nothing when I look at the U.S. national debt figures. While it looks like we are beyond the point of no return, our national debt level would have to double from $17.0 trillion to $34.0 trillion before our debt-to-gross domestic product (GDP) ratio matches that of Japan. (And don’t for a moment think that’s not going to happen!)

In 2011, only two years ago, we heard Congress … Read More

Why Investors Are Fleeing Both the Bond and Stock Markets

By for Profit Confidential

bond marketLate last year, the concept of the “Great Rotation” became popular. The idea behind the Great Rotation was simple: the theory was that once the bond prices started to decline, investors would take their money out of bonds and put them into the equity markets.

The logic behind the Great Rotation made sense. When one asset class becomes too risky, the bond market in this case, investors usually run towards other assets. But the Great Rotation isn’t happening?

Yes, the bond market has certainly come down from its peak. If we look at the 30-year U.S. bonds as an indicator of the bond market, the yields on those bonds are up roughly 24% since the beginning of the year. The 10-year U.S. notes are in a similar situation, if not worse. It’s the biggest bloodbath for the bond market we’ve seen in years.

But investors are not fleeing the bond market for the equity markets. In fact, we are seeing the opposite. Investors are leaving both the bond market and equity market.

The chart below illustrates the inflows/outflows from U.S. long-term bonds and stock mutual funds.

Long Term Mutual Funds Chart

While the chart above shows data from January to June of this year, in July, if you add the weekly outflow from the bonds mutual funds, they were upwards of $16.0 billion. In August, for the three weeks ended August 21, the long-term bonds mutual funds had an outflow of a little more than $17.0 billion. (Source: Investment Company Institute, August 29, 2013.)

If investors are not going to the equity markets as they run away from the bond market, where are they parking … Read More

How to Take Advantage of the Panic in the Bond Market

By for Profit Confidential

Bond MarketInvestors beware: the bond market is treading in very rough waters. The sell-off we have seen of U.S. bonds might just lead to more troubles ahead for the bond market. Just take a look at the chart below.

Thirty-year U.S. bonds look to be in a freefall. They have declined a little more than nine percent since the beginning of May—plunging from around $148.50 to below $135.00 now. As I have said before, the sell-off might just pick up speed as the losses of bond investors start to accumulate.

USB 30-Year US Treasury Bond Price (EOD) INDX

Chart courtesy of www.StockCharts.com

Keep in mind that long-term U.S. bonds are used as a benchmark on how other bonds (such as corporate bonds) will be priced. If the U.S. bonds decline in value, other types of bonds in the bond market follow suit.

Central banks, which normally buy U.S. bonds to protect their reserves, are selling them. Holdings of U.S. bonds held by the Federal Reserve fell by $32.4 billion to $2.93 trillion for the week ended June 26. That was the steepest reduction in their U.S. bonds holdings since August of 2007. And central banks have been reducing their U.S. bonds holdings for three out of the last four weeks. (Source: CNBC, June 28, 2013.)

That’s not all. Individual bond investors are running for the door as well. According to the Investment Company Institute, the long-term bond mutual funds have been witnessing a continuous outflow. For the week ended on June 5, bond mutual funds had an outflow of $10.9 billion; for the week ended on June 12, the outflow was $13.4 billion; and for the week ended on … Read More

Dismal U.S. Consumer Spending to Drag Us Back into Recession?

By for Profit Confidential

Dismal U.S. Consumer Spending to Drag Us Back into Recession While the mainstream economists were quick to believe that the U.S. economy is growing as the key stock indices suggest, I stood by my opinion that it isn’t.

After the first estimates of gross domestic product (GDP) for the U.S. economy came out, a wave of optimism struck and stock markets rallied. It seemed as if everything was headed in the right direction.

Sadly, they were wrong.

In its third and final revision of GDP, the Bureau of Economic Analysis (BEA) reported that the U.S. economy grew at just 1.8% in the first quarter of 2013 from the fourth quarter of 2012—that is 25% lower than its previous (second) estimates, when the BEA said the U.S. economy grew 2.4%, and 28% lower from its first estimate of 2.5%. (Source: Bureau of Economic Analysis, June 26, 2013.)

The primary reasons behind the decline in GDP growth are that domestic consumer spending and exports from the U.S. declined.

Going forward, I see continued dismal consumer spending in the U.S. economy. There’s no rocket science behind my reasoning, just one simple economic concept. Economics 101: when interest rates increase, consumer spending declines, because it costs the consumer more to borrow, so they step back from buying.

Remember: consumer spending is the backbone of any growth in the U.S. economy. If it decreases, our economic growth becomes questionable.

What we have seen in the past few weeks are skyrocketing yields on U.S. bonds—suggesting long-term interest rates are rising. The effects of this will eventually trickle down to places where consumers in the U.S. economy borrow to buy. One example of this type of place … Read More

Gold: Words of Wisdom from the Most Knowledgeable Gold Bug I Know

By for Profit Confidential

gold investmentsSomething a little different for my Profit Confidential family of readers today…

My colleague and resident gold bug, Robert Appel, BA, BBL, LLB, is the smartest guy I know when it comes to understanding and explaining what’s happening with precious metals. Robert recently penned this commentary/forecast on the yellow metal and he was kind enough to give me permission to share it with my readers. Listen carefully:

“With additional damage seen in gold and the mines, the gold wars continue.

For the record, and this is easily verified on any one of a number of sites, gold prices held Tuesday overnight in Asia, but suddenly Wednesday morning they entertained massive selling the moment London opened.

London is the ‘home’ of the original ‘Gold Fix.’ We are not making that name up. They actually use that term. In prior reports we have shared with readers ‘leaked’ minutes of discussions among the London traders (usually from the late 90s, there is always a time lag) when they discuss among themselves the importance of using their bourse to keep the price down.

That was then. This is now.

This phase of the Gold Wars is like nothing we have seen. It is more astonishing than 1975. More astonishing than 1980. And more astonishing than 1999 (the last time an all-out assault on gold was launched, and a time when, like now, the mining sector seemed dead).

It is record-breaking. We are seeing long-term gold bulls simply give up. This is astonishing.

We’ve attached an updated chart on Comex gold inventories. We realize that some reporters will tell you that such charts are meaningless, … Read More

Don’t Believe the Hype, This Is Where the Housing Market Is Actually Headed

By for Profit Confidential

Sales of new homes in May were recorded at a seasonally adjusted annual rate of 476,000. That was 29% higher over the same period a year ago and an improvement of 2.1% over the previous month. (Source: U.S. Census Bureau, June 25, 2013.)

The S&P/Case-Shiller index of home prices in the U.S. housing market increased 12.1% in April from a year ago. This was the biggest increase since March of 2006. In the prior month, March, the index showed home prices in the U.S. housing market climbed 10.9%. (Source: Bloomberg, June 25, 2013.) This index has been showing a robust increase since early 2012.

Can the housing market keep improving at this pace?

Dear reader, home prices increasing in the housing market is just one step in the right direction, but it’s not the destination. As it stands, I see home prices getting derailed from their upward trajectory before long.

Keep in mind that these housing market statistics are actually from the past. Consider that the S&P/Case-Shiller index is actually a three-month average and that its April numbers were strongly influenced by data compiled in February and March.

On June 19, a lot changed for the housing market’s future—the Federal Reserve said it will pull back on its bond purchases.

As a result, the U.S. bonds saw their yields skyrocketing. This phenomenon led to hikes in the mortgage rates. For example, 30-year fixed mortgage rates have gone up more than 32% since the beginning of May alone, and they appear to be continuously increasing. The 30-year mortgage rates were hovering around 3.4% in early May, and now they are beyond … Read More

Hard Proof There Is No Real Economic Recovery

By for Profit Confidential

Economic RecoveryThere’s a lot of talk about economic recovery these days. Mainstream economists are saying the U.S. economy will continue to grow, and the stock advisors are telling investors to buy on dips because everything is headed upward. Their arguments are: housing is hot, the unemployment rate is declining, and consumers are spending.

But I have to disagree with those claims. I believe this isn’t a real economic recovery. What we have seen since 2009 has been nothing more than a result of artificially low interest rates, money printing, and increased government spending. Real economic recovery only occurs when conditions improve across the board and return to their historical averages.

The jobs market, which should improve during an economic recovery, is actually stalled and tormented. The official unemployment rate has come down from 10% to 7.6% in May. But the official unemployment rate is not an accurate indicator of the jobs market, as it does not take into account the soaring rate of involuntary underemployment.

There is a spur of job creation in retail and other low-wage sectors, but the 4.4 million long-term unemployed in the U.S.—those who have been out of work for more than six months—aren’t seeing robust improvements. Each month, just 10% of them find jobs, and that number hasn’t changed in the last two years. (Source: Wall Street Journal, June 24, 2013.)

According to estimates from the Brooking Institution’s Hamilton Project, after adjusting for population growth, it could take up to three years for the unemployment rate in the U.S. economy to get back to its prerecession level.

The fact: American consumers are the ones that … Read More

Even Bigger Sell-Off Ahead for U.S. Bond Market?

By for Profit Confidential

It hasn’t been too long since I started to warn readers of Profit Confidential about what might happen in the U.S. bond market. (See “Bond Market Shows Signs of Weakness Ahead.”) As I have said many times before, the sell-off in the bond market will start slowly and then eventually pick up speed. And, as predicted, it’s all coming together.

Take a look at the chart of the 10-year U.S. bond prices below:

UST 10 Year Treasury Note Price Chart

Chart courtesy of www.StockCharts.com

The selling in the U.S. bond market has escalated. The 10-year U.S. bonds were trading in a down channel—making successively lower lows and lower highs since the middle of 2012. Recently, after the Federal Reserve, which has turned into a major buyer of long-term U.S. bonds, said it might pull back on its purchases, it all turned. The bond prices started to come down quickly (as you can see in the red circle on the chart above).

Since the beginning of the year, the 10-year U.S. bonds prices are down about four percent—from $131.00 to below $126.00 now. The image elsewhere in the bond market is very similar. The 30-year U.S. bonds are also shifting gears, and the bonds with higher risks, such as junk bonds, are seeing an even steeper sell-off.

Investors are running for the doors, fleeing the bond market at a very fast pace. According to the Investment Company Institute’s data, in April of 2012, long-term bonds mutual funds witnessed an inflow of $24.7 billion. In April of this year, these types of mutual funds had an inflow of only $12.1 billion—51% less. (Source: Investment Company Institute, June … Read More

Why Investors Should Be Worried About the Sharp Rise in Bond Yields

By for Profit Confidential

U.S. Bond Market CollapsingWhile government data continue to show a lack of inflation in the U.S. economy, the bond market screams the opposite.

The Consumer Price Index (CPI), the most commonly quoted measure of inflation, increased only 0.1% in May after declining 0.4% in April. Since the beginning of the year, from January to May, inflation in the U.S. has edged higher by only 0.2%. (Source: Bureau of Labor Statistics, June 18, 2013.)

But the bond market says this isn’t true.

Since May, we have seen yields on U.S. bonds skyrocket. Take a look at the chart below; it shows the change in yields on 30-year U.S. bonds (indicated by the red line) and 10-year U.S. notes (marked by the blue line). Note the circled area.

US bonds skyrocket chart

Chart courtesy of www.StockCharts.com

In a matter of a few weeks, yields on 30-year U.S. bonds have jumped about 19% and 10-year note yields have skyrocketed almost 35%.

This is dangerous for bond investors. As the yields on bonds climb higher, their prices slide lower, bond investors face losses…and they’re fleeing the bond market.

For the week ended June 5, long-term bond mutual funds witnessed an outflow of $10.9 billion. Looking at it on a monthly basis, the long-term bond mutual funds haven’t seen an outflow since December of 2008. This month may just be the first since then. (Source: Investment Company Institute, June 12, 2013.)

Even the foreigners, who have been providing credit to the U.S. economy, seem to be running toward the exit. According to Treasury International Capital Data, in April, foreign residents were net sellers of long-term U.S. bonds. Private foreign investors accounted for … Read More

Why Gold Bears Will Soon Find out They Are Wrong

By for Profit Confidential

There has been increased volatility in gold bullion prices as investors run from precious metals. According to data compiled by Bloomberg, gold bullion’s 60-day historical volatility reached 28.9% on June 13. This was the highest level since December of 2011. Average volatility over the past five years for gold bullion prices has been around 20%. (Source: Bloomberg, June 14, 2013.)

As the volatility continues in gold bullion prices, the fundamentals remain strong. Actually, demand for gold coins is unprecedented right now.

Aside from individual investors buying gold bullion, central banks continue to diversify their reserves into gold bullion as fiat currencies fail to protect their wealth. In spite of the decline in gold bullion prices, as has been well documented in these pages, central banks form Russia, Turkey, and Kazakhstan continue to add precious metals to their reserves.

Bullish stock advisors are forgetting that we are standing on the cusp of a global economic slowdown—an event that bodes well for gold bullion. It may be difficult for my readers to envision right now, but with the recent exodus by investors out of U.S. bonds, once the stock market starts declining, there will be few other “stores of wealth” for investors to seek aside from gold.

Major economic hubs have been slowing down for some time and now, they are taking with them smaller nations that rely on their demand. China, Japan, India, Australia, Germany, and France—they are all begging for economic growth.

But instead of getting growth, world economies are slowing. The World Bank lowered its forecast for global growth last week. It now expects the global economy to grow … Read More

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.