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The
next Crisis will be THE CRISIS.
You
might have noticed that each successive crisis over the last 15 years has
been both larger and
involved more senior asset classes.
1.
The 2000 Tech Bubble involved stocks.
2.
The 2007 Housing Bubble involved housing.
3.
This crisis involves Bond… as in ALL bonds.
To give
some perspective regarding size here consider that the credit default swap
market based on housing that nearly took down the system in 2008 was $45
trillion at its peak in 2007.
In
contrast, the global bond market is
well over $100 trillion today.
And
it’s growing rapidly.
Indeed,
US corporates are on track to issue over $1.5 TRILLION
in debt this year alone. Not only will this be an all time record… it will be the third consecutive all-time record for
corporate debt issuance.
Part of
the reason that the bond market has become so enormous is because few
entities, particularly sovereign nations, have the cash handy to pay back
debt holders when their debts come due.
As a
result, many of them are choosing to roll over old debts OR pay them back via
the issuance of new debt.
The US did precisely this in the last few months issuing over $1 trillion to cover for the
payment of old debt that was coming due.
So the
bond bubble is not only over $100 trillion in size…it’s actually GROWING on a
month-to-month basis.
Reading
all of this is no doubt concerning. However, the situation becomes much worse
when you consider that over 81% of ALL derivatives trades are based on interest rates (BONDS).
Globally, the interest rates derivative market is an unbelievable
$555 TRILLION in size.
These
are trades based on interest rates that in turn are based on the bond bubble.
Thus, the significance of the bond bubble simply CANNOT be overstated. Banks and other financial entities have literally bet
an amount equal to over SIX TIMES GLOBAL GDP on interest rates.
This is
why Central Banks are absolutely terrified the moment a sovereign nation
comes close to defaulting. Consider that Spain’s bond market is just $1
trillion. But
the derivatives trade market based on Spain’s bonds is likely well north of
10X this amount.
With this kind of leverage, even if 4% of the trades are at risk and
10% of those trades go bust, you’ve wiped out the equity at more than a
handful of the large EU banks.
In
simple terms, the bond bubble is THE bubble. And when it bursts, we will
experience THE crisis. In comparison, 2008 will look like a joke.
If
you’ve yet to take action to prepare for the second round of the financial
crisis, we offer a FREE investment report Financial Crisis
"Round Two" Survival Guide that outlines
easy, simple to follow strategies you can use to not only protect your
portfolio from a market downturn, but actually produce profits.
You can
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