Most market participants are amazed by the size of today’s so call bond market bubble. Suggesting that as soon as it blows up, yields will skyrocket and that its self will wreak havoc on the rest of the world.
Very well, but before we get to that, let’s see what Mish had to say.
I Expect New Record Low Long Bond Yield
Despite all the economic cheerleading about the allegedly strengthening economy, I see things differently. Job growth is shrinking. Average the last two months to smooth out the hurricanes and you get growth job growth of 114,000. For now, it’s still positive.
The stock market and the 30-Year long bond yield are at odds. I believe the long bond. If the economy was truly strengthening, the yield on the long bond would not be acting like it is.
We are one recession away from a new record low yield on the long bond, and it’s coming.
We couldn’t agree more, but from a different vantage point.
The ultimate debt collapse everyone is anticipating will eventually happen, but it might not happen during this cycle.
Why?
The massive amount of debt the FED and other central bankers have pumped into the world economy is deflationary in nature. Meaning, when the next recession comes, as it surely will, the FED will once again flood the market with free/cheap capital. Adding to already unsustainable debt levels.
For long yields to surge higher we need accelerating economy and inflationary expectations. Something we deem as impossible with most of the recent growth coming from debt. When the next recession hits, debt defaults will skyrocket. And that in itself is deflationary.
Sure, yields will eventually break out, but it might not happen until and unless the FED begins an outright monetization of the debt. Which could be the only final solution out of this mess.
Well, in terms of the stock market, the situation is incredibly complex. If you would like to find out what happens next, based on our mathematical and timing work, please Click Here.