Ain't No Yield High Enough
Now that yields on ten-year
Treasuries have cracked through 5%, on their way to infinity
and beyond, many on Wall Street are wondering how high rates
must go before bonds begin to draw investors away from stocks.
A falling stock market however would be just a minor casualty resulting from significantly higher rates. A bigger concern is the health of the over-leveraged U.S. economy itself. Interest rates high enough to offer an attractive yield to foreigners would be a disaster for U.S. consumers awash in credit card and adjustable rate mortgage debt, corporations issuing record amounts of low-rated bonds, and the Federal government itself, which continues to issue record amounts of Treasury bonds. To bail out the strapped debtors, prop up falling asset prices and limit loan defaults, the Fed will need to pursue a more inflationary monetary policy. The resulting surge in inflation would render unattractive any bond yield previously thought to be attractive. What would be gained nominally would be lost in real terms.
In fact, our nation has spent so much money that we did not have to buy foreign products we could not afford, and amassed such staggering amounts of debt collateralized by inflated assets, that it is now virtually impossible for bonds to ever offer competitive real yields. The only way that could happen would be for the Fed to stand idly by and allow our economic house of cards to collapse and tighten monetary policy while it happened. Even then, bond prices would collapses, but under that scenario at least they would bottom out. If the Fed tries to "rescue" the economy, it's a bottomless pit!
It is amazing that citizens of a savings-short nation so completely dependent on foreigners to finance its borrowing can remain oblivious to the threat of higher interests rates should foreigners lend elsewhere. Recent action in the bond market suggests that this arrogant false-confidence is about to be shattered.
For a more in depth analysis of the tenuous position of the Americana economy and U.S. dollar denominated investments, read my new book "Crash Proof: How to Profit from the Coming Economic Collapse." Click here to order a copy today.
More importantly, make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com, download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com, and subscribe to my free, on-line investment newsletter.
Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange