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The Atlantic
notes that 10-year Treasury bond yields have hit a
220-year low:
One of these
days, the bond vigilantes will show up. Today was not that day though.
Tomorrow's not looking good either.
The chart below
from Bloomberg shows the nominal yield on 10-year Treasury bonds the past
five years. Thursday's midday yield was the lowest it's been over that
period. It was also the lowest it's been the past 50 years. Actually, 100
years. No, 220 years.
Yes, Thursday's
brief sub-1.54 percent yield was the lowest ever.
I suppose most
Wall Street "strategists" would say this means stocks are very
cheap, since the S&P 500 index has an earnings yield -- earnings divided
by price, or the reciprocal of the P/E ratio -- that is
more than four times higher and a dividend yield
that is 33 percent greater.
Then again,
maybe the soaring bond market is telling us something more along the lines of
what one successful investor has to say about our future prospects, as Zero
Hedge reports in "'The
End Game: 2012 And 2013 Will Usher In The End" - The Scariest
Presentation Ever?":
If Raoul Pal
was some doomsday spouting windbag, writing in all caps, arbitrarily pasting
together disparate charts to create 200 page slideshows, it would be easy to
ignore him. He isn't. The founder of Global Macro Investor "previously
co-managed the GLG Global Macro Fund in London for GLG Partners, one of the
largest hedge fund groups in the world. Raoul came to GLG from Goldman Sachs
where he co-managed the hedge fund sales business in Equities and Equity
Derivatives in Europe... Raoul Pal retired from managing client money in 2004
at the age of 36 and now lives on the Valencian
coast of Spain, from where he writes." It is his writing we are
concerned about, and specifically his latest presentation, which is, for lack
of a better word, the most disturbing and scary forecast of the future of the
world we have ever seen....
And we see a
lot of those.
Consider this:
- We
don’t know exactly what is to come, but we can all join the very
few dots from where we are now, to the collapse of the first major
bank…
- With
very limited room for government bailouts, we can very easily join the
next dots from the first bank closure to the collapse of the whole
European banking system, and then to the bankruptcy of the governments
themselves.
- There
are almost no brakes in the system to stop this, and almost no one realises the seriousness of the situation.
- The
problem is not Government debt per se. The real problem is that the $70
trillion in G10 debt is the collateral for $700 trillion in
derivatives…
- Yes,
that equates to 1200% of Global GDP and it rests on very, very weak
foundations
- From
an EU crisis, we only have to join one dot for a UK crisis of equal
magnitude.
- And
then do you think Japan and China would not be next?
- And
then do you think the US would survive unscathed?
- That
is the end of the fractional reserve banking system and of fiat money.
It
continues:
- Bonds
will be stuck at 1% in the US, Germany, UK and Japan (for this phase).
- The
whole bond market will be dead.
- Short
selling on bonds - banned
- Short selling
stocks – banned
- All
that is left is the Dollar and Gold
It only gets
better. We use the term loosely:
- We
have around 6 months left of trading in Western markets to protect
ourselves or make enough money to offset future losses.
- Spend
your time looking at the risks of custody, safekeeping, counterparty
etc. Assume that no one and nothing is safe.
- After
that…we put on our tin helmets and hide until the new system
emerges
And
the punchline
- From
a timing perspective, I think 2012 and 2013 will usher in the end.
Wow. That's
pretty scary, even to me.
Michael J. Panzner
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