Richard Russell: There is serious trouble in the bond market
Thursday, March 25, 2010
Thursday, 25 March 2010
From Richard Russell in Dow Theory Letters:
At various and unusual times everything in the market boils down to one phenomenon. I've been talking about the bonds for months on end. What I said was that "the Fed can continue to follow its quantitative easing (printing money) program until the bond market says it can't."
Guess what? The bond market is now very close to saying, "We've had enough."
... You may remember that I emphasized that the bond market, in size, dwarfs the equities market. If the bond market (the debt market) heads down and interest rates head north, it would signal that the "fun's over."
... Many older subscribers probably remember my lifelong emphasis on the POWER of COMPOUNDING. But what of the power of negative compounding on debt? I think we are about to find out.
The power of negative compounding will be brutal. The cost of carrying the world's debt (including the US national debt) will be devastating. It will be highly deflationary and it will crush everything in its path. There will be a frenzy for dollars -- dollars will be needed to carry or pay off debt. There will be initial pressure on gold. There will be pressure on stocks. "Safe" high quality high-yielding bonds will compete with all other investment sectors.
Crux Note: Learn more about the excellent Dow Theory Letters here.
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