Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

How to Take Advantage of the U.S. Bond Market Panic

Interest-Rates / US Bonds Jul 03, 2013 - 05:05 PM GMT

By: Profit_Confidential

Interest-Rates

Michael Lombardi writes: Investors beware: the bond market is treading in very rough waters. The sell-off we have seen of U.S. bonds might just lead to more troubles ahead for the bond market. Just take a look at the chart below:


Chart courtesy of www.StockCharts.com

Thirty-year U.S. bonds look to be in a freefall. They have declined a little more than nine percent since the beginning of May—plunging from around $148.50 to below $135.00 now. As I have said before, the sell-off might just pick up speed as the losses of bond investors start to accumulate.

Keep in mind that long-term U.S. bonds are used as a benchmark on how other bonds (such as corporate bonds) will be priced. If the U.S. bonds decline in value, other types of bonds in the bond market follow suit.

Central banks, which normally buy U.S. bonds to protect their reserves, are selling them. Holdings of U.S. bonds held by the Federal Reserve fell by $32.4 billion to $2.93 trillion for the week ended June 26. That was the steepest reduction in their U.S. bonds holdings since August of 2007. And central banks have been reducing their U.S. bonds holdings for three out of the last four weeks. (Source: CNBC, June 28, 2013.)

That’s not all. Individual bond investors are running for the door as well. According to the Investment Company Institute, the long-term bond mutual funds have been witnessing a continuous outflow. For the week ended on June 5, bond mutual funds had an outflow of $10.9 billion; for the week ended on June 12, the outflow was $13.4 billion; and for the week ended on June 19, bond investors pulled out $7.9 billion worth of bond mutual funds. (Source: Investment Company Institute, June 26, 2013.)

While some are calling the recent plunge in the bond market a buying opportunity, some major problems still persist.

Fitch Ratings recently provided a credit rating for the U.S. economy, keeping the rating at AAA—prime investment grade—but remaining pessimistic about the country’s outlook. The credit rating firm reasoned that without cutting the budget deficit, the high national debt level will keep the country vulnerable. The firm said, “The outlook remains negative due to continuing uncertainty over the prospects for additional deficit-reduction measures necessary…over the medium to long term.” (Source: “Fitch affirms U.S. AAA rating but outlook still negative,” Reuters, June 28, 2013.)

Increasing national debt and the government’s expenses are making the country’s debt questionable, and the situation in U.S. bonds will be no different.

On top of all this, the Federal Reserve, which has provided the U.S. government with a line of credit by buying a significant amount of U.S. bonds, is becoming hesitant to buy any more. It has already hinted it will be slowing its U.S. bonds purchases later this year and will end its quantitative easing program by mid-2014.

If that does happen, a major buyer of U.S. bonds will be out of the market, and this departure—along with many other investors selling—will leave the bond market even more vulnerable.

I’ve been warning my readers about the risk of a bond market collapse for some time now. What does that mean for you? If the bond market continues to fall, it means interest rates are going up. Corporations that borrow heavily will see higher costs and lower profits.

One of my colleagues, George Leong, believes stocks will ultimately rise as investors leave the bond market and move into stocks. But from where I sit, I’ve never seen a stock market rise as interest rates rise. If you are invested in stocks, and I assume you are if you are reading Profit Confidential, my suggestion is to review each of your holdings to see how higher interest rates will affect them. I’d lower my exposure to companies sensitive to rate increases.

Michael’s Personal Notes:

The Chinese economy is showing traits that you should be watching. The country is experiencing an economic slowdown unlike any it has ever seen before.

The HSBC Purchasing Managers’ Index (PMI) for China has been contracting for two consecutive months. In June, the indicator, which provides an overview of manufacturing in the Chinese economy, registered at 48.2—down from 49.2 in May. (Any reading below 50 on the PMI suggests a contraction in the manufacturing sector.)

New business from the global economy to China declined, and companies in China have slashed their workforces.

The country’s new export orders in June fell at the fastest rate since March of 2009. (Source: Markit, July 1, 2013.)

In 2013, the Chinese economy is expected to grow at a pace slower than its historical growth rate. For example, Barclays PLC expects the gross domestic product (GDP) in the Chinese economy to grow at 7.4% this year. If this turns out to be the case, then this rate of GDP growth would be the slowest since 1990. (Source: Bloomberg, June 13, 2013.)

But that’s not all. Other banks, like Morgan Stanley (NYSE/MS), have also lowered their expectations of growth in the Chinese economy as well. Morgan Stanley now expects the GDP of China to grow 7.6% in 2013, down from its original forecast of 8.2%.

The Chinese economy was able to show some improvement after the global crisis in 2009. The country’s central bank reacted fast and flooded the financial system with liquidity. But the effects of all those efforts seem to be dissipating.

What many don’t realize is that the Chinese economy can actually be considered an indicator of growth for the global economy.

Not only is China the second-largest economic hub in the global economy, but China also exports a significant amount of its products to the global economy. If the country experiences a GDP decline, it’s because there isn’t demand in the global economy.

An economic slowdown in China can have many consequences throughout the world. One of them is a toll on the growth of smaller nations. Consider this: in the first four months of this year, China consumed 12% of all exports from Thailand. If the economic troubles in China continue, then countries like Thailand—countries that depend on exports to the Chinese economy—will see their own GDPs decline. (Source: The Nation, June 26, 2013.)

A similar principle applies to the U.S. economy as well. China is one of our trading partners. If demand in the Chinese economy declines, our exports will be hurt as well—and this will have an impact on our GDP, as U.S.-based companies that depend on exports to China will suffer due to a persisting economic slowdown. Keeping a close eye on the Chinese economy can keep you ahead of the curve when it comes to investing—even in American companies.

Source -http://www.profitconfidential.com/economic-analysis/how-to-take-advantage-of-the-panic-in-the-bond-market/

Michael Lombardi, MBA for Profit Confidential

http://www.profitconfidential.com

We publish Profit Confidential daily for our Lombardi Financial customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you! What you read in the popular news services, be it the daily newspapers, on the internet or TV, is the news from a “reporter’s opinion.” And there’s the big difference.

With Profit Confidential you are receiving the news with the opinions, commentaries and interpretations of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate and other investments so we can tell you what we believe today’s financial news will mean for you tomorrow!

© 2013 Copyright Profit Confidential - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules