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Edelson: A Sovereign Debt Crisis Is Looming, So Sell Bonds Now

Tuesday, November 15, 2016 4:57
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From Larry Edelson: Will President-elect Donald Trump deliver on his campaign promises to dig in with an anti-globalization stance and potentially start one or more trade wars?

I have no doubt that he will follow through on this promise. He was clear about one goal throughout his campaign: Getting much tougher on trade relations.

The president-elect has talked up a range of aggressive actions, including:

ArrowLabeling China a currency manipulator …

ArrowSlapping tariffs on goods imported from China and Mexico …

ArrowAnd renegotiating or walking away from trade deals like the North American Free Trade Agreement (NAFTA) and the proposed Trans-Pacific Partnership (TPP) deal that President Obama was pushing.

If President-elect Trump delivers on the protectionist measures he pitched during his campaign, investors can expect increased market volatility, especially in bonds. In fact, it’s already started.

This week alone, global bond investors have seen more than $1 trillion in value wiped out. My view: It’s the start of the sovereign debt crisis as foreign governments and central banks — worried about trade — send a message to Washington. So if Mr. Trump carries through with renegotiating trade deals or slapping tariffs on goods, guess what?

Our U.S. Treasury note and bond market will get clobbered, interest rates will soar, compounding the interest on our country’s gargantuan debts … and …

As I’ve been saying, the piper will inevitably and finally get paid.

Washington will go bankrupt, right along with the U.S. Federal Reserve, which is stuck with more than $4.5 trillion of U.S. notes and bonds.

The fact is my cycles and AI models warned of a sovereign bond crisis long before Mr. Trump even decided to run for president. We were heading down this path no matter who became our next Commander in Chief.

The iShares Barclays TIPS Bond Fund ETF (NYSE:TIP) closed at $113.37 per share on Monday, down $0.88 (-0.77%). Year-to-date, the largest fund tied to inflation-protected Treasuries has gained 3.36%.

This article is brought to you courtesy of Money and Markets.

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