Guest Post by Martin Armstrong
We are entering a phase of rising interest rates, so bond funds will do poorly. We are not yet at a stage where U.S. government bonds would default or be swapped. Therefore, my recommendation has only to do with rising rates. What you should do is stay short-term, like 90-day paper or less, be it corporate or government. This is just an interest rate play moving into 2018.
As we move into 2018, we will look at corporate vs government shift. That will become the play, but that will most likely unfold after we begin to see serious problems with government debt outside the United States. In Japan, the ownership of public debt by the private sector is in freefall. Debt to GDP held by the private sector before Abe came to power was 177%, which had collapsed to 100% in 2012, and has continued to decline to about 75%. The Bank of Japan through its quantitative easing now owns more government debt than the private sector. Japan is in VERY SERIOUS trouble and there is no possible way to reverse this nightmare.
The European Central Bank now holds 15% of Germany’s national debt. The central banks have been running out of positive-yielding safe-haven bonds. Yes, the Federal Reserve holds $2.4 trillion is less than 10%. The volume of repo loans using Treasury debt as collateral has collapsed from $2.6 trillion to about $1.8 trillion according to Barclays.
Despite all the complaints that QE has failed, we must ask how deep deflation would be without it. True, QE has not produced inflation. It has not stimulated the economies of Europe or Japan because the confidence of the people is not there. The central banks are trapped and politicians, not hedge fund managers, run government. These people are ignorant at best if not outright deaf, dumb, and stupid. They cannot see how this system of government borrowing will continue if the public no longer buys their debt.
This is by no means going to end nicely. So keep the power dry. We are in for a real crisis come 2018.
Not just bonds, beware of everything.
Including precious metals.
Lately I’m thinking paid up productive real estate may be the safest thing, at least if you have a lot of available cash money to pull it off (everyone else is just plain screwed, IMO).
@Anon: Got to disagree with you. 99% of stuff depreciates or requires finding just the right person to buy whatever you have for sale..
Our old friends gold and silver are commodities (in addition to having been “money” and readily exchanged by everyone for thousands of years) and will retain value no matter what. That value in relation to other things may go up and down but – please – if you find any gold or silver that has no value, give me a call – I’ll be there in a jiffy with a truck!
Muck
Same with RE, but the question is not how much you can sell your gold for a hundred or a thousand years from now, it is how much you can sell it for in the near future and whether or not private commerce in it will be banned or not.
It gets banned from private commerce and you become a criminal if you sell it the same way selling all that Cocaine and Heroin you bought before it was banned that is so much more “valuable” today will do.
It has happened before in the United States, it can just as easily happen again for any number of reasons.
Another internet genius with free financial advice.
Caveat Emptor – Buyer BEWARE.
Think for Yourself.