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You know that the bond market is a giant bubble, fueled by unbridled, unprecedented Fed money printing.
You know that the bubble must inevitably bust.
And you can also be certain that the consequences will be far-reaching.
But how do you know when the bust is beginning?
And how do you distinguish that momentous event from the many false alarms that markets often give?
One telltale clue can come from following the money: When you see money rushing for the exits in huge amounts — that’s when the danger of a true bust is greatest, which is precisely what this chart from Mike Larson is showing right now!
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In it, you can see …
- a diminishing flow of money into U.S. bond funds through May of this year …
- a sudden, panicky exodus this past June …
- a continued series of outflows ever since.
Although the outflows in the last two months haven’t been quite as heavy, the fact that they’ve continued for five straight months is unprecedented.
And as Mike reported in his Money and Markets column yesterday, in just these five months alone, we’ve now seen outflows totaling more than $128 billion!
For mutual fund watchers, the most striking consequence is that Bill Gross’s Pimco Total Return Fund has shrunk by a whopping $37.5 billion since January, losing its top spot among the largest mutual funds in the world.
But for us, it means a lot more than that: It means that a major trend shift is now under way … and the shift is about to hit the fan.
We’re talking about …
- Much higher long-term interest rates, starting immediately
- Big losses in the market value of all long-term bonds, regardless of issuer
- Mounting pressure on the Fed to let short-term interest rates start rising back to normal levels, despite any political pressures to the contrary
- Sharply higher borrowing costs for consumers, corporations and governments, plus
- A monumental reversal in investor psychology — from the contagious lust for risk and yield … to a panicky flight to safety.
Remember: This giant bond bubble has been growing by leaps and bounds for many years. Once it starts to unravel, there’s no central bank or government that can stop it.
My advice:
Don’t underestimate the potential magnitude and consequences of this trend change.
Make sure you’re prepared well ahead of time by keeping your cash safe and short term.
And be sure to stay tuned for updates as this incipient megatrend gains momentum.
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.
{ 3 comments }
Why can't the Fed make up for less demand elsewhere?The Fed has unlimited ability to create,any amount of fiat,to take up the slack.I would be more worried about Dollar demand and inflation.So far,I don't see much worry about either.Some day,unless something happens to stop our chronic deficits,all this monetizing of debts and letting the Dollar,take the hit for all problems,is going to come back,to hurt us.
Watch this
The U.S. Economy is slowly being replaced by monetary stimulus…that IS becoming the new economy. For that reason, bond holders don't really have a lot to worry about in the near-term. The difficulty will come as the major credit agencies slowly continue to downgrade the U.S. credit rating as issued debt balloons out of proportion to GDP, growth prospects, and tax revenue. That's when bond holders need to worry.