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If you think the market has been quiet lately, you’re watching the wrong one.
The biggest market in the world is not for stocks. It’s for bonds, notes, mortgages and all kinds of debt.
We call it the interest-rate market, and it’s been going berserk with activity.
Here’s a quick, play-by-play rundown from interest-rate expert Mike Larson …
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Bond yields are rising sharply — but not because of inflation.
It seems the more bond yields surge, the more the bond fund managers say it’s not a “real” crisis because “inflation is still anemic.”
Don’t believe them! These are the same guys who are bleeding assets, losing you money, and who have utterly failed to foresee the carnage of the past few months.
Bond yields are not rising solely because of higher inflation, the traditional cause of rising rates. Instead, it’s all about the flow of hot money!
You see, too much hot money piled into the bond market over the past four and a half years, encouraged by reckless Fed policy. And now the same investors who dog-piled into bonds to piggyback on the Fed’s policy are getting crushed. So they’re yanking money out by the truckload! It’s as simple as that.
We just saw evidence in this week’s Treasury TIC data, which shows …
Foreign holders have dumped a whopping $40.8 billion in long-term Treasuries, the biggest exodus from bonds in the history of the U.S.
Worse, June was actually the third month of mass dumping in the past four, for a total of $79 billion.
China, the biggest holder of our bonds, unloaded $21.5 billion.
Japan, the second-largest holder, dumped $20.3 billion.
And it wasn’t just government bonds, either.
They sold $5.2 billion of Fannie Mae, Freddie Mac and Ginnie Mae bonds, $5 billion in corporate bonds, plus $26.8 billion of U.S. stocks.
All told, more international capital flowed out of U.S. markets than at any time in history, worse even than at the depths of the 2008 credit crisis.
REITs suffering their worst collapse since the credit crisis.
These companies own shopping malls, apartment complexes, office buildings and other forms of commercial real estate. The value of those properties — and the rental cash flow streams they throw off — was wildly inflated by the record-low rates engineered by the Fed.
But now that the rate market is going berserk, investors are freaking out! Look at the iShares Real Estate ETF, ticker symbol IYR! It has plunged by more than 17 percent just since May, giving up every penny of its 2013 gains and then some! I’ve been warning investors to stay the heck away from these stocks for some time, and now those warnings are paying off big-time!
Utility stocks are getting whacked!
In late 2012 and earlier this year, I was a fan of the utilities because they had momentum at their backs and because they offered higher yields and better growth potential than bonds across the board. But I recommended Safe Money readers take profits on those stocks a few months ago because I foresaw rising rates hurting their value.
Sure enough, utilities shares are now getting hammered! They made a lower high on the charts even as the broader averages rose to marginal new highs in July. And now they’re breaking sharply lower.
This just goes to show you that rising rates are NOT just hurting bondholders. They’re spreading their insidious tentacles throughout the stock market as well, threatening to ignite a broader selling wave the likes of which we haven’t seen in years!
Stay tuned to your upcoming Money and Markets issues for more news, analysis and recommendations on the volatile interest-rate market and how you can potentially profit from it.
Good luck and God bless!
Martin
Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.
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Why do you say, rising interest rates, is not due to inflation? Maybe the fiat holders are finally figuring out that there is plenty of inflation.Just look at housing, here in So California.Risen over 25%, past 12 months.Not to mention all the product package downsizing, everywhere you look, in supermarkets and elsewhere.If massive Fed currency dilution isn't working, I suspect, smart investors know the Fed's solution, will be to increase the dilution, under the cover of phony low, govt inflation numbers, until inflation gets so bad, they can't get away with lying about it.If Obamacare causes a big increase in the deficit, like I suspect, that means more, future Fed monetization and inflation.Americans vote for the politician who lies the most and promises the most,"something for nothing".If they were dishonest getting elected, why would they become honest, after elected?
"I said that I don't believe that inflation pressures are behind the bond market sell off because I don't believe that's the primary cause. Simple as that. There is inflation certainly, but that's not why investors are dumping bonds. They're dumping them because they have to sell or want to avoid even more losses – just like we saw other asset classes get dumped in past post-bubble environments." — Mike Larson