We’ve had quite the debate lately as to whether bonds are in a bubble or not. I actually think they were in a bubble, but the bubble has already popped.

First off know that bond cycles tend to be very long and reverse very slowly. So we aren’t going to see bonds just collapse like a stock market crash and all of a sudden we have interest rates pushing 15%. That just doesn’t happen in the bond market.

Know also that 25 to 30 years is about as long as a bond cycle ever lasts.

Now take a look at the following charts.

That is a 29 year bull market, complete with a final parabolic move out of the trading range on the Fed’s ill fated attempt to artificially control long term rates.
I have news for you, when ever the government tells you it is going to force the market to do something you can pretty much get on the other side of that trade with virtual impunity. (Remember what happened when the SEC banned short selling in financials) Markets are just too big for anyone to change a secular trend. Any attempt to do so will just hasten what would have happened anyway.
As you can see Bernanke did just that. The Fed’s attempt to control long term rates just accelerated the final move resulting in the bond market immediately reversing and now even after a year and a half interest rates are still 140 basis points above the “Bernanke bottom”.

I believe the recent rally over the last few months is the initial echo rally (a bear market rally) that will top and roll over before making new highs.

Ask yourself, would you lend money at 4% for 30 years to a country that is actively trying to debase it’s currency and is so deeply in debt that we will never be able to pay that debt off without even further currency debasement? Don’t forget you would be buying into a market that has been in a steady uptrend for 30 years.

Of course you wouldn’t.

I know there are plenty of analysts that will argue for the continuation of a 30 year bull, but then those same people expected the tech bubble to continue for eternity and these are the same analysts who had convinced themselves that there was a shortage of real estate in `05 & `06. At secular bull market tops the masses will always be able to manufacture nonsense reasons for why the bull will continue indefinitely. At secular bull market tops common sense gets thrown out the window.

Human nature never changes. I can also guarantee that the top of the gold bull will be no different. If you think bond bulls, real estate bulls or tech bulls were ridiculous I can assure you they won’t hold a candle to the absolute insanity that will reign among gold bugs when the secular gold bull tops.

After taking a quick look at the long term bond chart it appears bonds have a major cycle low about every 2-2 1/2 years. They just did put in that cycle low this year.

You can see from this chart that every 2 year cycle has bottomed above the last. If this was to change it would break the pattern of higher highs and higher lows.

So we have a simple cyclical sign to watch for. If bonds are unable to move to new highs during this cycle and if they move below the spring low then we will have confirmation that the secular bull market in bonds has expired.

152 thoughts on “BUY BONDS? NO THANKS

  1. pimaCanyon

    I doubt anyone buying bonds thinks of it as lending money to the government at 4 percent. They are buying bonds because bonds are in a long term bull market and they expect price appreciation. Just like any asset bubble, buyers are expecting to make money on the price appreciation. The interest payment is a bonus.

    If the logic is “why lend the government money at a ridiculously low interest rate for 30 years”, then what is the logic for buying gold? Gold pays NO interest. The gold play is purely speculative. Why can’t the bond play be the same thing? (but with the added bonus of quarterly interest payments)

  2. Keys

    Geez Gary,

    You like to stir the pot up don’t you. lol

    Nice chart. Maybe it has already begun to pop then. If you are correct about the slow demise, then this adds a second major reason to why I won’t short bonds. Slow demise, and continued Fed intervention.

    Going long is stupid, and going short is problematic. I guess I will stick to my old turkey pm’s. Nice day today, so I am out of here.

    Have fun on the blog gents and good luck with the trading for those that do.

    Anon1 behave. I am off to pump some gas. 🙂

  3. Gary

    My point is that it is purely speculative at this point. Buyers are counting on price appreciation just like they were counting on price appreciation when they bought severely overvalued houses in 2006.

  4. Daniel

    I think it comes down to the fact that the odds bonds (especially long term) will continue up is much less than the odds Gold will continue up. (Based on length of bull– Gary’s cycles– debt probelms– etc. etc.)

  5. Anonymous

    Now that I’ve seen Gary’s charts, I’m more inclined to short bonds than I was. Not to mention, TLT has now retraced 50% of it’s collapse from the all time high.

    I’m all in gold, but short bonds might also serve as a hedge (that is not the reason to short them). It’s possible BOTH trades work, while limiting downside in gold. Not that I think there is much downside, more like free insurance. Unlike Gary, I intend to short bonds at some point, but maybe that time is closer than I initially thought?

  6. Keys

    If the logic is “why lend the government money at a ridiculously low interest rate for 30 years”, then what is the logic for buying gold? Gold pays NO interest. The gold play is purely speculative. Why can’t the bond play be the same thing? (but with the added bonus of quarterly interest payments.

    I caught Pima’s comment before closing the computer.

    The reason is that bonds have a ceiling. Yield is not a bonus, it’s more of a gauge. I guess if you are believe rates are going to 2.5%, your logic works. But unlike gold, which can go to $5000, $10,000 or whatever, bonds are capped unless you believe in negative rates. Further, the more insane these rates get, the more dangerous holding becomes as the risk reward ratio gets even worse.

    Now really gone. 🙂

  7. Justin

    Mid range bonds have already broken to new highs, I’d expect long term bonds to follow. The volume increase on the long bond during this last surge is also bullish for bonds.

  8. Gary

    Short term bonds have fared better because China is becoming increaingly nervous about the dollar and is exiting longer term bonds in favor of short term where they have a better chance of getting their priciple back.

  9. Anonymous

    Here that Justin? China’s concern with getting principle back, I wonder if you’ll get yours returned? 🙂

  10. Anonymous1

    Why would anyone short bonds? You are selling short to a buyer with unlimited amounts of money in the form of the printing press….. and a determined will to keep rates where they are.

    it’s suicide

  11. Brian

    Bill Gross said in his last letter he is making 20% rolling down the yield curve from 5’s to 4’s. We could still see a double top (or bottom) as the bear market in stocks works to it’s low.

  12. Anonymous1

    Gary – you said: “I have news for you, when ever the government tells you it is going to force the market to do something you can pretty much get on the other side of that trade with virtual impunity. “

    Again – this is not a statement you can back up with fact. Take a look at this:

    “The most striking episode of bond-price pegging occurred during the years before the Federal Reserve-Treasury Accord of 1951. Prior to that agreement, which freed the Fed from its responsibility to fix yields on government debt, the Fed maintained a ceiling of 2-1/2 percent on long-term Treasury bonds for nearly a decade. Moreover, it simultaneously established a ceiling on the twelve-month Treasury certificate of between 7/8 percent to 1-1/4 percent and, during the first half of that period, a rate of 3/8 percent on the 90-day Treasury bill. The Fed was able to achieve these low interest rates despite a level of outstanding government debt (relative to GDP) significantly greater than we have today, as well as inflation rates substantially more variable. At times, in order to enforce these low rates, the Fed had actually to purchase the bulk of outstanding 90-day bills. Interestingly, though, the Fed enforced the 2-1/2 percent ceiling on long-term bond yields for nearly a decade without ever holding a substantial share of long-maturity bonds outstanding. For example, the Fed held 7.0 percent of outstanding Treasury securities in 1945 and 9.2 percent in 1951 (the year of the Accord), almost entirely in the form of 90-day bills. For comparison, in 2001 the Fed held 9.7 percent of the stock of outstanding Treasury debt.”

  13. Anonymous1

    You potentially have a 10 year fight against the Fed wanting a ceiling. That is a fight you won’t win.

    Japan has held rates for decades as well.

    They can do it – because they have the printing press on full blast to buy the bonds. That is a never ending bid that can happen for years. Yes – it will blow up eventually, but you will be broke shorting into that scenario.

    Stay away from TBT – just buy gold instead.

    I’ll buy gold and bonds (cash)

  14. Anonymous1

    Shorting bonds is the equivalent of doing due diligence on American Express, determining it to be a crappy company, and shorting it while knowing Warren Buffet is buying.

    The Fed may not be half as intelligent as him, but then again – Buffet does not have the printing press.

  15. Anonymous

    I just looked in my Economics 101 text book from college. It says on page 130 that shorting bonds is the same thing as buying stocks.

    If anyone has any other questions, just ask me. I have most of my buisiness and economics books right here from college.


  16. Todd R

    Hi Gary,
    The one thing that concerns me is the history and current price levels of the Japanese yen. Japans debt to GDP is around 200% far exceeding our debt/gdp. Yet, the yen currency is still very strong. I am thinking you have already addressed the Japan situation. Could you shed some light on this again? Thanks.

  17. Gary

    LOL you made the argument for me. You say that the Fed can hold interest rates down because they have a printing press. That is exactly why it can’t work.

    If the government prints to buy bonds the value of the dollar gets degraded. Then maybe they hold rates down but the value of the currency falls apart. That can only go on for so long before bond holders exit in mass. Then the Fed would have to print even faster to hold rates down leading to an even faster exodus.

    The only thing the Fed can accomplish with their printing press is to accelerate the process…which amazingly enough is exactly what happened.

    After the initial pop bonds did what? Thats right they melted.

    Folks magic just doesn’t work in the world we live in and it would take some pretty strong magic for the Fed to be able to hold bond rates down and the dollar up at the same time.

  18. Anonymous1

    “it would take some pretty strong magic for the Fed to be able to hold bond rates down and the dollar up at the same time.”

    Been happening for 8 months this year so far.

    Maybe it’s a magical year folks!

    I didn’t make your case. You wrote as if its imminent. They want to cap rates, therefore you can take the opposite trade with abandon. I just provided yet again evidence to the contrary. They capped rates for a decade twice. They can do it again.

    Rates go up when bond prices go down. Bond prices go down when there are more sellers than buyers. When the buyer has unlimited cash, the sellers are outnumbered.

    Think Japan again. How is is that their rates are at 1.5% for 20 years when they print as much or more than the US?

    Again – your theory sounds good on the surface, but crumbles when thought through.

  19. DG

    Gary, you said there were three things that would convince you that the stock market bear has returned. Why can’t there be a few tells that the bond bull market is over? How about “when the 50 day line crosses below the 200 day, and then the 200 day line turns down…” or something. I agree that lending money to an over-indebted institution is speculative, but so is buying gold. Why not apply the same analysis to both? You believe in gold because of macro conditions, yet you also give tells, cycles, charts, sentiment, etc. for gold. Why argue about bonds: just share the signs that the bond bull is over.

  20. Gary

    The difference between Japan and the US is that Japan had massive savings at the time they embarked on their failed plan to bailout the system. They mostly drew from this internal savings to fund bailouts. That is deflationary.

    We aren’t doing that. We have no savings. Our only recourse is to borrow and print. No matter what size the deflationary pressures the Fed can effortlessly print 100X that amount of dollars. The check is that it will destory the currency. Obviously they will attempt to walk a fine line and devalue the currency gradually and try to stay one step ahead of the deflationary forces.

    But in a purely fiat monetary system they can at any time overwhelm deflation if they are willing to let the dollar collapse.

    What the deflationists fail to account for is that the Kondratieff cycle was developed during a period when all currencies were backed by gold. There was a strict restriction on money supply growth. In that environment yes the Kondratieff cycle will play out.

    But we haven’t been in that position for years now. No currency is anchored to anything anymore. The Knodratieff cycle can only play out now if central banks resit the impulse to debase the currency. So far none of them have.

  21. Anonymous1

    Good post DG. He is great with Gold and explaining things, then seems to rely on guesses and theories but ignores the data and history and example we have in Japan when talking bonds and economics. Someone yesterday called me excessive-compulsive (sure I am, make for a good investor), so maybe it’s just that part of me that drives me nuts. I invest in all markets with the same methodolgy. I don’t fundamental analysis in one market but gut feel in the other. Gary does this though. Great analyst on gold, then conjecture and gut feel on econ and bonds.

  22. Gary

    I would point out that they haven’t been able to hold rates for a year and a half now.

    Japan didn’t print. They didn’t need to debase their currency, they had plenty of savings to draw from.

    Here are two conditions.

    If the 10 & 30 year makes new highs then yes the bond bull is still intact.

    Just taking a quick look it appears the bond market has a major cycle low about every 2 1/2 to 3 years. Bonds just did put in that cycle low. So it’s no wonder they are rallying.

    If the next cycle moves below the previous cycle then I would say that would break the pattern of higher highs and higher lows. If sometime during the next two years bond price drops below the spring low then that would be confirmation that the bull ended in 09.

  23. Anonymous1

    “The difference between Japan and the US is that Japan had massive savings at the time they embarked on their failed plan to bailout the system. They mostly drew from this internal savings to fund bailouts. That is deflationary.”

    Well – that is half the answer. Japan also was able to stay afloat because the rest of the world was expanding like crazy. Today – the world is contracting, even if the money supply is supposedly increasing.

    As far as where we are. The US savings rate is now over 6%. Who is to say that we are now not beginning to fund our own Treasuries with internal savings? Again – they only make up about 2% of household wealth which is historically low, in the face of baby boom retirements who need income?

    We are going in circles now. Printing money does not immediately create inflation. We could give each citizen $1 million in printed money. The price of milk will not go up the next day. When you are the reserve currency, not until they $1 million begins to chase limited amounts of products will that happen. Spending is demand. Demand means production needs to go up. That raises costs that are passed on to the people. Again – if we each got $1 million and put it under the mattress, it’s the same as not having it in the economy. Has to get spent.

    The key metric to watch for is the velocity of money. Take a look at the second chart on this link. It’s not going up, even though trillions are sloshing around:

  24. Gary

    I gurantee if everyone got a check for a million dollars the price of milk would instantaneously jump to over $100. The shelves of every store would immediately be emptied.

    This is what happens in a hyperinflation. The population immediately scoops up everything because they understand price will be higher tomorrow than today.

    We saw this to a big extent in the summer of 08 wWhen the government mailed rebate checks in an attempt to “stimulate” the economy.

    It backfired as we now know. The rebates didn’t stimulate anything. All they did was spike the price of gasoline as consumers rushed to buy before price rose.

    Trust me no one will be hiding their million dollar check under the mattress. Hell they didn’t even hide a $300 check.

  25. Anonymous


    Did you email those statements to Gary so we can all check ’em out?

    I knew you wouldn’t!

  26. Nap Boy

    Oh, how I love this action in gold!

    I’m gonna have a big lunch with the wife, then nap like there’s no tomorrow. 🙂

    Thanks for keeping me on track, Gary. As soon as gold gets a little higher, I have an important milestone I’d like to share with everybody.

  27. Anonymous1

    You are making assumptions on the shelves being gone.

    Japanese get free money. They almost pay people to borrow money, yet they don’t.

    Inflation will happen when products are being bought and those products can not be produced by the current infrastructure in place. Current capacity utilization rates in America have about 50% more room before they are stressed.

    Velocity of money is not there, because demand is not there. Demand is not there, because employment is not there.

    A dollar crash will not happen, because the $ is priced in Yen and Euro’s and other FX. To say the dollar would crash is to say that the Euro is a safe haven currency. IF the $ does not crash – you will not get hyperinflation.

  28. Anonymous1

    Gary has not asked for them. Why bombard him with them if he doesn’t want them?

    If he wants them – sure – I’ll get them to him.

    You still on that though? And you still going to be a man of your word and apologize when I do provide them?

  29. Anonymous

    Agree about the insanity that will be seen at the top of the gold bull. But that is years away, and gold will likely correct a few times before then.

    In order to hedge a physical gold position against a near-term drop in price, I am thinking of shorting junior miners. Obviously, a gold price correction will cream the juniors. Question is, which of them is the crappiest of the lot? Any input appreciated.

  30. Gary

    If the government gave out million dollar checks the dollar would crash. And I’ve already proven to you what people would do with free money because we saw exactly what they did with it in 2008.

  31. Gary

    Look just like the stock market bonds are in no-mans land. New highs and its still a bull. Break the spring lows and bonds are now in a long term secular bear.

  32. Daniel

    Demand is there.
    there are business owners in my area pissed off because banks will not lend!!
    Banks start lending again velocity will pick up. (dam bursting)

  33. Gary

    Never, never, never short a bull market. If you aren’t comfortable then just trim your position size.

    There is simply no need to add extra positions against the trend. You would just have twice as many positions to manage and twice the commissions.

  34. Anonymous1

    Back in 2008 – people were still in consumption mode. The savings rate was about 0. They were taking money out of their house still to buy. Today, the cash-in loan is replacing the cash out loan. they are paying down debt – not adding to it.

    After the pain of the past two years, people have changed the way they view consumption and debt. A couple of years of high unemployment and we are seeing a fundamental shift in attitudes. The McMansion mentality is gone. So if you think they would all go out and buy a new IPad, then we will have to agree to disagree there. I would agree with you if we were still in 2008 and the mindset was that everything is ok. My bet is they would un lever and stay liquid, not buy the next gadget. Velocity of money is you key to inflation, and its falling.

    If we use your charts in this post as an example of a top for bonds, then be consistent and say we saw the top in inflation then too. You mention bonds being 1400 BPS higher than back then, well – oil is $57 cheaper since then too. Ags are cheaper. Homes are cheaper. Wages are cheaper. Production and productivity is lower.

    Stay consistent. Prices overall are down since those blowoff peaks.

  35. Anonymous

    Never, never, never short a bull market.

    Sounds like you got burnt at some point and learned the hard way. At what point did you decide old turkey was the best way in bull markets?


  36. Anonymous

    The government already gave me $9500 in the last year. I can’t wait to get my other $990,500 so I can buy more GOLD.

  37. pimaCanyon

    Daniel, thanks. That makes sense to me. That’s why I have money in gold and no money in bonds. Still, I can see why people might want to invest in both, rather than having all their eggs in one basket. The problem with bubbles is that it’s very difficult to predict when they might end and at what price. If there are two bubbles out there, some folks like the idea of taking advantage of both of them.

  38. Gary

    The housing bubble had already burst and been for 2 years in 08.

    Consumers rushed to buy gasoline for exactly the reason I said. They saw prices rising everyday and became conditioned to buy before prices rose again the next week.

    Trust me no one will hide their million dollars under a mattress…not even you 🙂

  39. Anonymous

    On page 230 of my History of Economics textbook it talks about the transformation of Capitalism into Socialism.

  40. Anonymous1

    The point being – printing does not mean inflation….. you are proving my point, its only the SPENDING of the printed dollars that will create inflation.

    IF people put it in the mattress, prices would do nothing. IF they spent it – prices would rip higher.

    That is the point.

    As of now – the printed money is not making it into the economy. Bank lending is still contracting at like 15% a year. Most ever. They will eventually lend….. but not until the government forces it, or they see demand pick up. Demand won’t pick up until employment does. Employment won’t pick up until demand does.

    It’s a brutal cycle we are starting.

    Which is why I own bonds (cash) for the slowdown, and gold for the destruction of all things fiat.

    The problem with gold that I worry about – is who is going to want it true crisis? Will anyone have the ability to buy it from me so I can take that cash to buy milk? If they don’t take USD at the grocery store, will they take my gold coins? Will a 16 year old cashier know how to price my gold that day so I can feed my family? Gotta turn that gold into some type of unit of measure. If I am starving – I won’t trade my loaf of bread for your gold coin.

    Anyone else worry about gold liquidity in the scenario we are all worried about, which is the complete collapse of the US?

  41. Gary

    But the printing is making it into the financial system and has been since March 09. Why? Because the free money was given to the banks not the consumer. Did they hide it under the mattress? Of course not, they plowed it into the stock and commodity markets creating asset inflation.

    The same thing will happen if the government resorts to giving free money to the rest of us, only it will materialize as overall inflation in everything.

    Ultimately that will lead to spiking energy prices which will destroy the economy again just like they did the last time. Then we will see everything collapse again.

  42. Justin

    Instead of worrying about theories I just look to charts and trends and I think those will tell you what is going on. Commodities clearly went parabolic in 2008 and are likely in a bear market right now, and bonds are still in a bull market and on the short end they are moving to new highs. On the long end I think they will follow. The dollar is likely in an uptrend and the Euro is in a downtrend so any talk of hyperinflation at this point is just a losing position right now.

    I think gold can actually be shorted here now too, with an easy stop at 1265 or so. We are just so long in the tooth without a major correction in gold right now it is beyond me why anyone wouldn’t think one would be in the near future.

  43. Gary

    The Hndenberg omen isn’t 100% anymore than anything else and it tends to work best when we see a cluster of them. It can also take months before the decline materalizes.

    The next intermediate cycle low is due in November so I wouldn’t expect the serious decline to start until probably early Oct.

  44. Gary

    I’ll say it again. Never, never, nver short a bull market. It just isn’t worth the risk. Ultimately the surprises in bull markets come on the upside. One will just end up whittling away at their cash trying to short bull markets.

    There are much easier ways to make money than to take a risky trade shorting a bull. If you think gold is going down then just wait patiently in cash and buy the dip when it comes.

  45. Anonymous1

    It may not mean much – but to a bond bull like me – it seems significant.

    I find it interesting that TLT is now consolidating in an area that is higher than where is was before the crisis shock sent it up on the spike.

    Can’t say that for many other asset classes besides gold.

    Gold and cash (bonds)…. it will save you in inflation or deflation.

  46. Anonymous

    Huge gap down Monday. Next week will be ugly.

    I’m advising all of you to sell before the close if you have any long positions. This goes for gold, silver, everything. Massive selloff in all asset classes. Round #2 of the bear begins next week.

    Folks, don’t over think this stuff. The economy is horrible, people are losing jobs and money, and the Fed has done little to stop the deflation we have witnessed over the past 10 years.

    It is simple folks: The environment is bad for investing. Get out or short.


  47. Gary

    LOL when has the economy ever had anything to do with investing?

    The economy was already rolling over in the summer of 07 but the market still managed to rally back to new highs. The economy hasn’t really improved at all other than some government stimulus yet we still had an 80% rally in the stock market.

    I think we already heard several people tell us how gold was going to $1000 a few weeks ago. If we had listened we would have missed a 65 point rally in 13 days.

    One doesn’t ride a bull market by freaking out at every little wiggle.

  48. Frank

    Again, Japan manages to fund its bond sales domestically. Look at the money supply figures for Japan and you will see that there has been no rampant money printing. I don’t know the details of their QE but I am sure that it was mild. (Also see comments below about carry trade). If Japan destroyed its currency then it could increase bond yields, but that would be self-destructive. They are stuck with this “conundrum”. They can’t default for political reasons because debt is not held externally and rampant printing would implode the system by driving up interest rates. It would make it impossible to run future deficits of this magnitude and that again hits a political brick wall.

    Also, you have to remember that the QE of 2001-6 just exported inflation via the carry trade at the time, so it was possible without causing domestic inflation even though the yen hit 130ish. If they did it now with no carry trade then it could have a domestic impact.

  49. Anonymous

    Doesn’t matter Gary. Huge down week next week.

    The economy has everything to do with investing…God, I can’t believe I actually had to tell you this.

    Investing is the derivative of the Economy.

    I enjoy your blog and don’t mean to put you down. But a square has four sides.


  50. Gary

    And I just showed you two occasions in the last 3 years where investing had nothing at all to do with the economy. Are you sure your square isn’t a circle?

    George you sound like another perma-bear that just can’t wait to short something.

    Read my last post again. There is no need to rush to get short. The mathematics of the short side don’t require one to catch the top to make money.

    The great thing about selling short is that one can wait till the trend is clear and still make as much or more than the guy who got whipsawed to death trying to pick a top.

  51. Keys

    If the chicken little call out is finally correct, why would you sell gold. For what dollars? The Fed has said it will destroy the currency if need be? The fed hasn’t even gotten aggressive yet. We all remember the downward spiral in 08, where we(at least I was) glued to CNBC watching which new bank would fail. The fed came in with buckets of cash and simply stopped it. Oil crashing down to 35, and they were able to bring oil back up to $70. In order to sell gold and essentially buy dollars, you would have to believe that the Fed would allow the dollar to strengthen or that is doesn’t have the ability to destroy it.

    Not hard. The fed can buy 20% of mortgages and forgive the debt. Have whoever wants to do this, refinance, get a cheaper monthly payment, and now we have QE again. The fed could mail coupons out for whatever. The fed could pay people to dig ditches (ie busy work). There are a slew of simple ideas the fed can do to get non-productive money out that it hasn’t even tried yet. To get out of gold now seems wrong. Gold is the hedge to the collapse. I don’t know if it would decouple from stocks right away, but it sure seems like the safest place to be over the long-run.

    I do agree with something setting up in the market, but I am not sure and its pure gut feel. Gold is the easy hold right now, so that is where my purchasing power is. I could be wrong about sustained inflation, wrong about bonds, wrong about Santa Claus, and gold will still do well.

  52. Gary

    There is a small amount of BoW today. Of course we will have to wait a couple of hours and see if it is still there by the end of day. But I would remind everyone that we still haven’t seen a big negative money flow day and no intermediate rally in the last 5 years except one has ended without one of those.

    It seems more likely we are just heading down into the usual daily cycle low and it could bottom at any time.

  53. Anonymous

    Gary; thats a bunch of BS. The S&P is going to 950. Watch. I wouldn’t be surprised if it happens in one week.

    Market is rolling over. Just look at the charts man!

  54. Gary

    LOL are you the same guy that told me the charts were calling for gold to drop to $1000?

    The next intermediate cycle bottom for stocks is due in late October to early December. of course that tells us nothing about when a top will come. Cycles theory is mostly worthless for spotting tops.

  55. Keys

    Thanks Gary,

    Not interested in getting into the stock market short or long at this point, only adding elements for my curiosity at this point. My belief is that if anything were to happen it would be in the fall, just wondering if the cycles ran that way as well.

    Have a great week-end fellas. You too Anon1.:)

  56. Anonymous

    GDX and GDXJ seemed to be singing from different hymnals today.

    $NYA also nearly doubled its new highs even though we closed down, and new lows fells below the Hindenburg line.

    Anybody who expresses certainty of where we go next (and I’m not accusing Gary of this) has better tea leaves than I.

  57. Onlooker

    New highs/lows on the NYSE is terribly “polluted” by all the non-equity issues that populate it; such as bond funds/ETFs, preferreds, etc.

    Apparently almost all the new highs were not common stocks, making this Hindenberg Omen very suspect, to say the least.

    I sure wish somebody would come out with breadth measurements based solely on the S&P 500 that was available through StockCharts. You can use the Naz data but it’s just not the same.

  58. Anonymous

    Here are the best tea leaves in the house:

    Silver (according to Gary is magic potion for PMs) is rolling over. PMs are going to lead this next leg down in the S&P on the march to 950.

    Watch and learn kids. Bears are sleeping like babies this weekend. Bulls are out getting smashed off of cheap beer just to find a nap.

  59. Anonymous

    … and if that comes to pass, we’ll owe “Anonymous” a debt of gratitude.

    There’s always a bull predicting a moon shot, and a bear predicting a crash at some point in the future. Luckily for their egos, their always right. 🙂

  60. Anonymous1

    With “patterns” one sees what they want to see based on their bias. Gary sees an inverse H/S pattern. Another with a bearish bias would say that we are making a H and S top going back to the end of 2009 for the left shoulder, the beginning of this year for the head, and now the current rolling over at the left shoulders high as the right shoulder.

    Everyone is right some of the time.

  61. Anonymous1

    From Rosie today:

    Consider the facts — these are not opinions:
    The aggregated household debt-income ratio peaked in Q1 2008 at 136%.
    Currently, this ratio is at 126%. But the pre-bubble norm was 70% (no wonder
    25% of Americans have a sub-600 FICO score). To get down to this normalized
    ratio again, debt would have to be reduced by around $6 trillion. So far, nearly
    $600 billion of bad household debt has been destroyed. In other words, we
    have much further to go in this deleveraging phase. Maybe this is why the
    McKinsey report concluded that this process can and often takes up to seven
    years to complete.
    Folks, we are in this for the long haul. It’s not too late to enter the acceptance
    What about debt in relation to household assets? That debt-to-asset ratio is
    currently at 20% (the peak was 22.7% set back in Q1 2009) but again, the prebubble
    norm was 12.5%. The implications: classic Bob Farrell mean-reversion
    would mean a further $7 trillion of debt extinguishment.

    We are a long way off this deleveraging phase from running its course. The
    government, along with the Federal Reserve, have expended tremendous
    resources to cushion the blow. But now we see first-hand what happens when
    policy stimulus fades and a mini-inventory cycle peaks out in a credit
    contraction: stagnation in Q3 followed by renewed economic contraction in Q4.
    Initial jobless claims rose
    2k in the August 7th week
    from an upwardly revised
    482k level the week
    before …
    Play it safe. As in … safe yield.

  62. Gary

    Actually there is more to my observation than just seeing what I want to see. Today marked the 30th day of this daily cycle. That cycle averages 28-40 days trough to trough. So we are now in the timing band for that low.

    We still haven’t had any sign of negative money flows. And like I said no intermediate rally except one in the last 5 years has topped without seeing one or more of these.

    Next week we will move right into the middle of the timing band for that low. A swing low next week could potentially mark the bottom of the cycle and shorts would be at risk of getting caught in the rally out of the cycle bottom.

    Next I will point out that the current cycle rallied 26 days puting it into the right translated catagory. As I’ve mentioned before right translated cycles have high odds of holding above the prior cycle bottom. That means the market probably won’t fall below 1010.

    Then we also have the coil stats and the fact that the trin closed above 6 on Wednesday. Historically that has marked one month bottoms within a week and quite often within one to two days, which also synchs with the cycle count.

    So all in all there are quite a few reasons to “see” the inverse H&S and almost none to see the double shoulder top.

    Now on to your second post. Where does one suppose the vast majority of that debt is? That’s right it’s tied up in real estate. Which isn’t surprising since we just had the largest real estate bubble in history.

    But let’s stop and think for a minute is that debt really creating deflationary forces? Is it even defaulting? No, it isn’t. Why? Because congress changed the mark to market rule. The banks can hold those loans on their books at full value and in the meantime rake in the free money from the Fed.

    So while it looks bad on paper the truth is that by changing the accounting rules congress stopped the deleveraging process for a big protion of consumer debt.

    Heck as we all know a great many home owners have just stopped paying their mortgage. There certainly isn’t any credit destruction or money suply contraction if home owners are now using their mortgage payments to buy more stuff. It’s almost like having a credit card that you never have to pay for.

    Now what is the next big fix coming out of congress? Yep you got it. The politicans are now talking about just having FNM and FRE forgiving large protions of mortgages. If this passes (and I wouldn’t put it past politicians in an election year) it will make another big dent in that debt mountain you mentioned.

    So while it sounds nice to say the consumer is deleveraging and that is causing massive deflationary forces it simply isn’t true. The government has greatly slowed the deleveraging process and is taking steps to eliminate another big chunk of that debt with a wave of their magic wand.

  63. Anonymous

    Hi Gary,

    I don’t believe it’s really consistent to note that credit hasn’t been destroyed because of regulatory relief from accounting rules for the banks on the one hand, and homeowners are walking away from their mortgages on the other. Defaulting on a HELOC might be “deflationary” for the homeowner, but there’s still a bank, investor or government left holding that bag.

    The relaxed rules might allow the banks to avoid raising more capital, which is a sort of relief, but if it still means holding a portfolio of nonperforming loans, that doesn’t seem particularly inflationary.

  64. Gary

    Actually the banks don’t even have the loans anymore they sold tham to the Fed. The Fed printed money to buy them. It was called QE1.

    And I didn’t say that was inflationary I was just correcting Anon1’s claim that consumers where undergoing a massive deleveraging process which would mean they are using available capital to pay down loans and it simply isn’t true.

    A great many that are underwater have simply walked away from those loans. Now they are stuck on the Fed’s balance sheet and as we all know the Fed can print as much money as they want so there is no deleveraging process going on at the Fed.

  65. Gary

    If that were true then explain to me what the hell was going on from Oct. 07 to March 08.

    Silver will ultimately follow gold. And when we get into the final phase of a C-wave silver will massively outperform gold.

  66. aviat72


    Some comments.

    (1) People are buying bonds not because they believe they are getting a great return ON capital; they are buying them because they guarantee a return OF capital.

    (2) There are demographics issue with regards to life-insurance/pensions to move their allocation to less risky assets including bonds.

    (3) You ask why would anyone buy bonds at 2% for 10 years? The question to ask is where else? Very few have the courage to move all in to PMs as you have done. And the financial system of advisers has no incentive to recommend gold.

  67. Gary

    Yes I know what you are saying but if the bond bull expires and the Fed continues to devalue the currency they will NOT get a return of their money. Their money will be devalued. So in reality they will lose a massive portion of their wealth.

    There really is no “safe” investment, especially not at this point in history.

  68. Anonymous

    i really hope gold does get back to $1000 so I can put more money to work, but I also will buy more at $1180 first.

    Even if gold got to $1000, that is only an 18% correction, which is nothing.

    The “watch and learn kids” troll is the most bearish clown on gold here, and even he can only predict an 18% pullback. That’s what bull markets are made of…his covering and my buying long means much higher prices.

  69. Gary

    The best time to use options was last spring. If the bull had consolidated and finished the C-wave we would have had a large enough and quick enough move to make options profitable.

    That opportunity passed us by. Now we are in a situation where the bull will probably creep higher for the next 6 to 9 months. That’s not really conducive to buying options so I think I will just stick with my small margin position.

  70. Anonymous

    “And the financial system of advisers has no incentive to recommend gold.”-aviat72

    Are you kidding? Look around, it’s only just begun!

  71. Anonymous

    aviat needs a new financial advisor.

    Besides, retail advisors are notorious for being late to the party.

    Join us aviat, get some gold and start to party like Pool Boy and Nap Boy and myself!

  72. Anonymous


    You don’t think a trend up for miners in the next 6-9 months would produce a move to new highs that would make the risk-reward on long-dated options a worthwhile supplement to the account?

  73. Gary

    Well if you were to buy deep enough in the money to get a delta of 85 to 90% maybe. That would pretty much eliminate any time decay.

    You would have to go all the way down to the March 35’s to achieve that on GDX calls.

    I origninally thought the June calls would give one plenty of time and lo and behold gold and miners have been consolidating all year. So I think this time I will just use a little margin and I will exit that margin as soon as I think the intermediate cycle has topped.

  74. Anonymous

    “The Fed’s attempt to control long term rates just accelerated the final move resulting in the bond market immediately reversing and now even after a year and a half interest rates are still 1400 basis points above the ‘Bernanke bottom.'”

    Gary, you have no credibility if you can’t even get the most basic elements of finance correct. The 30 year U.S. government bond reached its all time low of 2.5090 percent on 20081218. Today, it closed at 3.8538 percent. That is (approximately) 134 basis points higher.

  75. Pool boy

    Well I have been at the pool all day. Just checking in. Freaking sun burn, the 10 beers help the pain though. Had to dust off my keyboard, I couldn’t read the letters. Time for another beer. I will check in soon.

  76. Anonymous

    Exactly, silver cannot go higher if the market craters. In Oct 07 to early 08, the S&P wasn’t falling apart but merely correcting. But when it did fall apart later 08, silver was destroyed as well. This indicates that if gold and silver were to go sky high, the S&P I’m sure will be trading above 1200-1400 or even 2000. The S&P certainly can’t plunge with silver and gold doubling or quadrupling from here. That means there will be many sectors in bull market mode, not just PM’s.

  77. Anonymous

    In the discussion on debt and government policies, I did not notice anyone mentioning Zimbabwe yet.

    Isn’t it true that Mugabe ordered the massive printing of money to repay IMF debts?

    Of course we know what the outcome was – hyperinflation.

    The currency was debased and trust in the Zimbabwe govt vanished.

    This all happened without the “consumer spending/deleveraging” in the picture.

    Could something similar (maybe not so extreme) happen in the US?

    I think Gary is saying yes.

    It is really not about the consumer. It is how governments can repay their debts since it shifted from the private to the public sector.

  78. Gary

    from 2000 to 2003 gold rose 60% while the market was dropping 45%. Miners rose 325% during this period.

    If the Dow:gold ratio is to get to 1:1 stocks will need to drop while gold rises.

    I think you are making the mistake of looking at one of the true selling climaxes in history and extrapolating that into the future.

    The next leg down in stocks will most likely be a grinding 2 to 2 1/2 year decline similar to 00-02.

    In that scenario gold $& silver will most likely continue to rise while the stock market slowely fades.

    That is what happened during the initial phase of the bear market in late 07 and early 08 and it is what has been happening lately also as gold and silver resisted the initial correction even so much as to rise when the flash crash was taking down everything else.

    Gold and silver didn’t start to fall until it got late enough in the intermediate cycle that a correction was due and even so it was one of the mildest corrections of the bull market so far.

  79. Leone

    Just being facetious….

    This is not a final parabolic move, But one of intermittent degree. It is no different to those of ’98, ’93 or ’86 Just because it broke-out of the channel, it doesn’t make it the ‘final one’. It’s more likely a bull trap that you often talk about.

    This, however, doesn’t suggest that there is still a larger degree parabolic rise to come, but it is possible.

  80. Gary

    We will know if bonds break below the last 2 year cycle low. If they do that then that was the parabolic top and Bernanke will have manufactured the final move up in bonds.

  81. Bill in Nashville

    Greatly appreciate the post on bonds because I have 100% of my retirement funds in various Vanguard bonds funds – VFIDX VWEHX VUSTX VBLTX VFIIX. I moved into these starting last summer and have enjoyed the overall rise.

    HOWEVER, I realize bonds are on borrowed time and I want to be the first out the door when the party is over.

    My question is that I’m unsure how exposed such GNMA funds may be to imminent decline? With recent rumoring about how Big O may command Fannie & Freddie to simply “write off” some portion of loan principal, how could that move affect VFIIX and other such GNMA funds where so many retired folks have invested their life savings?

    Specifically does the “implicit” Fed guarantee mean that any write off would add to Federal debt or would these amounts instead be “expropriated” directly from shareholders? After what O did to the GM bond holders, he is not to be trusted. If we were to take the hit, wouldn’t the FED also be left holding the bag?

  82. Gary

    I don’t really know but I certainly wouldn’t want to own bonds after a 30 year bull market and the government actively debasing the currency.

  83. Anonymous

    What if the market rallies from here to make new highs on the Dow? What do you think would happen to PMs? My take is that they would all go up together.

  84. Anonymous

    Only an idiot would assume the next decline will be exactly like ’08, whether stocks or gold.

    The fact it already happened recently makes it far less likely, if anything.

  85. Anonymous

    “Only an idiot would assume the next decline will be exactly like ’08, whether stocks or gold.

    The fact it already happened recently makes it far less likely, if anything.”

    Obviously you have little experience with capital markets, economics, and consumers.
    The fact that it happened recently makes it MORE LIKELY to happen again.
    S&P is going to 950. I wouldn’t be surprised to see the DOW around 5000 or so within the next year and a half.

  86. Anonymous

    Could be, but who cares? Gold goes higher in that environment and nobody here trades stocks, fool!

    Calling for 950 on the S&P is no big deal, if you are even correct it’s only 11% lower. I’m in gold for the 300% gain, and up very nicely so far.

    You obviously don’t understand percentages. 🙂

  87. Anonymous

    There is too much hype about PMs.

    Silver SLV moved nowhere for 5 years.

    Back in 2007, this guy was writing about gold miners and which positions he owned:

    Disclaimer: The author current owns 500 shares of GFI purchased at an average price of $16.94, 1000 shares of NEM purchased at an average price of $45.32, 5000 shares of TRE purchased at an average price of $5.50, 6000 shares of NXG purchased at an average price of $2.97 and 5,000 shares of CDE purchased at an average price of $4.63. **Coeur d’Alene Mines Corporation is primarily a silver miner with some minor exposure to gold.

    Today where do these stocks stand?

    CDE – same price
    TRE – same price
    NXG – same price
    GFI – down 20%
    NEM – up 20%

    You would have done better with a savings CD. Too much gold and silver miners hype.

  88. pimaCanyon

    Onlooker, you make a good point.

    Question: All these new ETF’s, e.g. the commoditiy ETF’s, the bond ETF’s, how about the double and triple stock index INVERSE ETF’s like SDS, BGZ, TZA–on what exchange are these traded??

    If just some of these ETF’s are traded on the NYSE, then you are right, this Hindenberg Omen is definitely suspect because today’s NYSE is not the NYSE of yesteryear.

  89. Anonymous1

    “I was just correcting Anon1’s claim that consumers where undergoing a massive deleveraging process which would mean they are using available capital to pay down loans and it simply isn’t true.”

    Gary – you claim that you can’t open the Z1 report link I give you. Google: Fed Funds Z1 report. Open the PDF and look at page 17 of the pdf which is page 10 of the report.

    That is deleveraging. And de-leveraging is more than using capital to pay down debt, it also includes defaulting debt. You are also wrong in implying that banks do not take any hits at all based on the accounting rule change. Go and read ANY bank quarterly report and tell me what you see there.

  90. Gary

    Any restaraunt I go in is full. The stores are full. And this is Vegas with one of the highest unemployment levels in the country. The perma bears seem to think the economy is terrible but from what I see in the real world things don’t appear to be that bad.

    If there was massive deleveraging going on I certainly wouldn’t have to wait in line to be seated at any of my local restaurants.

    Compared to what those establishments looked like in 08 and early 09 there is a world of difference.

    Bears seem to be trying to manufature something that just isn’t there … yet.

    Certainly we will roll over again but I suspect it will be as a direct result of the medicine applied, namely too much liquidity. That will cause a currency crisis and spiking inflation that will again destroy the economy.

    As I pointed out in a prior post virtually all commodities diverged, some massively, as stocks put in the July low.

    Liquidity was already starting to leak into the commodity markets.

    Oil is now deep into the timing band for it’s cycle low. As soon as it bottoms we will have another 50 to 70 days for it to rise which probably isn’t the best thing for the economy.

  91. Justin

    The stores are full….interesting statement. Where I live there is more vacant commercial property than I’ve ever seen before. And I’ve traveled quite a few different places in the country over the past year and seen similar things. Restaurants may still be full because people tend to spend extra income on going out to eat, even during a recession. They basically are using going out to eat as their way of getting out of the house, replacing the vacation they are no longer taking. Speaking of vacations, I’ve never seen such insane deals on taking vacations different places. All of these are signs we are still in a recession, and the deflationary forces are still at play.

  92. Gary

    Oh we have plenty of vacant stores that went under during the crash. That’s not what I’m talking about. I’m talking signs that the consumer is faltering.

    And I got news for you going out to eat is the first thing consumers cut out when times get tight. I saw it in 08 as we really started to head down into the recession when oil spiked to $147. It accelerated as the market crashed in the fall. I could go into an Applebees on a Friday noght and there would be 3 or 4 parties in there.

    The local target store was all but empty.

    That’s just not what’s happening right now. Even the high priced restaurants are packed.

    We will certainly get back to those times again but it’s just not happening yet. Until it does it’s probably unrealistic to expect the market to crash.

  93. Keys

    Where would you be if you sold your position and then gold sliced right through $1240, $1265 and headed to $1300? I’ll tell you were you would be. You would be sitting at your computer with two fists full of hair wishing you weren’t such an idiot.

    YUP!!!! And that is all we really need to know. Everything else is for fun! I might be an ass(no, I am an ass), but Gary keeps it real!

  94. Keys

    G-Train. Are you kidding!! What the heck is wrong with you. lol

    I believe in the Easter bunny, Santa Clause, and Ben the deflationist.

    I buy bonds leveraged to enhance that 4% return. Dollar deflation all the way baby! I also gave 300% of my money to Madoff, I hope that return comes in soon!!

  95. Anonymous


    I’m hearing from my real estate agent (I live in Kansas) that you can get a condo in north Las Vegas for $25-$30k right now. Are those condos decent or is it the ghetto part of town?

    I make it to Vegas about 3 times each year (mostly the strip) sometimes more if business takes me there. If Condos are really that cheap, I’m thinking of buying one as long as its not the rough part of town.

    thanks and I like your blog, long time reader

  96. Anonymous

    One scam (even a big scam) doesn’t necessarily mean a lack of worldwide supply, it just means con men found their marks.

    Those looking for an indication of worldwide physical shortages might consult this personal blog of an executive at the Perth mint. He recently posted an set of staggered hypothetical observations of the gold futures market that could give warning of a true physical squeeze (essentially, persistent backwardation is the red flag), fwiw:

    Personally, I prefer this guy’s sober (though usually bullish) observations to the GATA crowd’s Ayn Rand-Illuminati doctrine of gold market dynamics. To each his/her own.

  97. Wes


    You’ll probably be right that the stock market will be up on Monday. The Monday of August options expiration week has been up 22 of the past 30 years, and 1% (or more) moves lead to the upside 5-2 for this day.

    Still, it would be fine with me if we could run the stops under the 7/20 low. That would set up a much better set of circumstances for the move higher.

  98. Gary

    I can’t recall ever saying the market will be up on Monday.

    What I said was that a coil usually finds a bottom in 2-5 days after a breakdown if it is going to work.

    The market is entering the middle of the timing band for a cycle low this week. That means we could find a bottom this week but it doesn’t have to occur this week.

  99. Wes

    Well, you said that the chances of a move down on Monday was less than 50%.

    I just too a wild guess that you thought the market would be up.

    Read your own material.

  100. Gary

    Hmm I can see how that could be misinterpreted. Let me clarify that I meant I thought the probablity of the coil failing is less that 50%, not that I thought there was a better than 50% chance Monday would be up.

    There are still two more days for the coil stats to work before we would be looking at a failure.

    So let me restate that by Wednesday we should be headed up if the coil is going to work. The many other signs that I noted in the report would suggest that by Wednesday the odds are greater than 50% the market will have found the cycle bottom.

  101. Gary

    Here is the actual wording.

    “As I’ve mentioned before this tends to occur right before a big move. If we were on day 40 of the daily cycle I would be very confident the move would be up but as we are going to be on day 31 come Monday morning there is a chance the move could be down. Given the other signs I’ve pointed out I would put the odds at less than 50% of that happening though.”

    I was talking about the direction of the move coming out of the NYMO compression.

    It could still compress another day or two before a big move. I was just noting that Monday would be day 31 of the daily cycle not that Monday was going to see the resolution of the compression.

  102. Wes

    It would take about a 3% down move to take out the 7/20 low. A move of that magnitude over two days probably would result in a lower McClellan move, though.

    We should be maximum short term oversold by Wednesday morning if it does happen.

  103. Gary

    Yes there is the possibility that the big move out of the compression will be down. We aren’t so late in the daily cycle that we can rule out a move down. That’s what I meant by saying Monday would be the 31st day of the cycle.

  104. Wes


    I’m confused about why you think the Fed’s recent move to buy treasuries with interest earned on their (bad) bonds is so inflationary. If they simply retired this money wouldn’t that reduce the money supply ?

    I think the markets were expecting a more robust (inflationary) Fed response. When it didn’t happen, the dollar went straight up and the stock market down.

  105. Gary

    I don’t know that the recent move is all that inflationary. They just aren’t withdrawing any liquidity. I think the orignal expansion in the money supply is and will continue to be inflationary…at least when it comes to asset markets. Not withstanding that the stock market may or may not be back in the secular bear tend.

    Commodity markets have been inflating for the last year and a half and once oil gets past it’s cycle low I’m afraid it will continue to inflate.

    Make no mistake about the dollar. All that happened is the intermediate cycle ran long enough to put in a bottom. It did so right on the long term support at 80. The dollar rally is nothing more than a cyclical occurence.

    Now we just need to wait and see how long the rally lasts before the fundamentals drag it back down.

  106. Wes


    I don’t follow commodities. Are they up more than the S&P in the last 18 months ?

    Can you name the symbol for a representative commodity ETF ? Thanks.

  107. Gary

    Stockchart symbols
    $wtic = oil +114%
    $copper = copper +153%
    $gaso = gasoline +140%
    $gold near all time highs
    $silver +111%
    $crb = commodity index +35%

  108. Anonymous

    Gartman has called a top on the PMs. Time to ramp up the leverage on the flip side of this clowns call!

  109. Anonymous

    Told you guys….big gapper downer tomorrow…ftse red, futures red…down we go. 950 S&P.


  110. Gary

    LOL 1080 is a long way from 950. The market is just working it’s way down into a cycle low just like it always does every 30-40 days. Nothing special about that.

  111. Anonymous

    Totally useless. Most stocks went up over 200% the last 18 months.

    The SP itself was up nearly 70%.

  112. Gary

    Yes asset inflation like I’ve been saying now for months, with varying degrees of outperformance by most commodities.

    George demonstrates why it is pretty hard for most bears to make money, even in a bear market. As the market works into a cycle low the technicals begin to breakdown. Bears, who are notoriously impatient, press the short side into these technical failures.

    Then the cycle bottoms followed by a violent rally which catches the bears heavily short. If the rally lasts long enough the shorts end up covering for a loss. Repeat!

    This is exactly what happened at the July bottom. I warned and warned we were nearing a significant bottom but all the shorts could focus on was the techincals and of course the technicals lured traders in only to get caught in an explosive rally.

    Now we have the same thing happening again. The market is working it’s way down into a cycle low. The bears are starting to feel the most confident at the time they should be the most nervous.

    Now if we had seen a large selling on strength day I would be a lot more confident this was the start of something big. Without that and I’m afraid the technicals are going to lure in the bears for another beating.

    With no sign of smart money exiting the prudent thing to do is wait for the Dow Theory sell signal before getting aggresively short and even then you don’t do that at the end of a daily cycle. You wait till the bounce out of that cycle low starts to weaken.

  113. Keys

    Since it is Sunday.

    I am under the impression that gold will peak peak when the currency crisis finally sets in. I do believe a global currency crisis is inevitable at this point. Japan has been able to withstand longer, I believe from internal savings, but the continued growth in its debt will eventually challenge the yield. If Japan’s bond yield start to rise, this may put pressure on all other majors with crummy country balance sheets. I do believe we will see double digit worldwide returns when this thing is all over. I also don’t see any other way except to have a worldwide demise in major currencies. A re-valuation process is needed. I do wonder if the bond bubble’s slow demise will parallel as gold and pms rise. In this case I am using bonds as an indicator, but not as an investment nor a short. This is not watching price action, but rather a focus on a constant trend upwards in yield. You may see a parallel peak in yields as gold makes its final punch forward too. Both say the same story about a panic in currency.

    There are plenty of reasons to want to hold gold, just adding to my curiosity so to speak. I do have to wonder where everybody will run after the yields in bonds start to increase. This will most likely result in a refocus on currency quality. I am trying to figure out if the Japan bond market might be the canary in the coalmine though. Don’t bother talking to me about decade year lows, a decade is not a long time, it is a moment in passing. The only reason I mention is that it seems that Japan is at the point where it may start to need more foreign investment and it may not get it with such low yields. This may be the trigger. I am not talking months here, I don’t have a timing element at all. Just the Japanese system is unsustainable at this point, it will need to change.

    I do believe that pm’s are a strong hold at this point, nothing else even remotely comes close. I do believe that pm’s will probably balloon to new highs as this worldwide currency crisis takes place (for the majors). The governments will continue to mask CPI claims, and will most likely attack the oil market futures. Desperate times will bring about desperate measures. $300 oil is not fun and if such a panic were to come about, oil would be the first place to put money, but energy prices affect joe and sally.

    Anyways just thinking out loud. Looking forward to another deflation scare. Hopefully this is caused by the Fed bidding bonds up to zero yields, and making gold fall to 750(I don’t believe it, but we can always hope for gifts). The fed seems to want to convince the flock that deflation is the reality, and tells its story by teaching us to use its tools, while reality is hidden.

  114. Anonymous

    I just love taking bears’ money to fill my accounts, pay for my vacations, and funding all me free time activities.

    Oh yeah, and thanks for paying down all my debt. I’m entirely debt-free thanks to gold bears, they even paid off my house and land!

  115. Anonymous

    Bond yields still continue to fall. We will re-test the lows in yield before this is over. The bond bubble has not popped because there is really no bubble. Stocks have very little upside but much downside.

  116. Anonymous

    Bonds definitely are not in a bear market (yet) as Gary says and one should not have to wait another two years to find out.

    Bonds have gone up big since he wrote this. There is no “bond bubble”. The fundamentals clearly support lower interest rates at this time and in the foreseeable future. But yet people kept shorting TLT or buying TBT and getting burned. They were way too early.

  117. Anonymous

    Bonds up big again today. Took huge profits in EDV earlier in the day as bonds are over getting extended. Too bad for anyone owning TBT up to this point.

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