The biggest problem for the financial markets is not stocks nor is it the economy.
It’s the Bond Bubble.
Globally the bond bubble is now over $199 trillion in size. The world taken as a whole is sporting a Debt to GDP ratio of over 250%.
This is a systemic issue.
Once the bond bubble became large enough, Governments themselves are at risk of beingCentral insolvent. At that point, there were only three options:
1) Stop spending as much money.
2) Increase revenues (more on this shortly).
3) Make the debt loads easier to service.
Governments/ politicians will never push #1 because it is political suicide (the minute someone pushes for a budget cut the media and his/ her political opponents begin attacking the candidate for being “heartless” about some issue or other).
Option #2 is the so-called “growth” option. When Central Banks talk about focusing on “growth” what they’re really hoping to do is increase taxes (higher incomes, higher GDP growth=more tax money).
Remember, taxes=revenues for Governments. And revenues are what the Government uses to make debt payments. However, at some point, once you are deep enough in debt, the growth option becomes impossible.
This leaves options #3= make the debt load easier to service.
There are two primary ways to make debt more serviceable.
1) Lower interest rates.
We’ve already had #1 for seven years. Central Banks have been at ZIRP if not NIRP for years. This policy has failed to result in any deleveraging of note. If anything, it has allowed Governments and Corporates to make the bond bubble even larger (everyone has been taking advantage of astoundingly low rates to issue even MORE debt).
Which leaves only one option: INFLATION.
In the last 12 months every Central Bank has made major admissions that they WANT inflation and are willing to do anything to create it.
In the US, FIVE of the six inflationary metrics the Fed uses to measure inflation have all reached their targets.
The Fed still refuses to raise rates.
In Japan and Europe, Central Banks are already spending a record amount of QE per month ~$180 BILLION per month. And both Central Banks have just announced that they will fail to hit their inflationary goals (setting the stage for even more aggressive monetary policies).
Gold has figured it out. While everyone is worrying about whether or not stocks have topped, Gold has broken out or is about to breakout in $USD, Yen, and Euros. 99% of investors have missed this, but it is the biggest “tell” in the markets today.
This is a MAJOR signal. Inflation is coming. And the biggest opportunities will be in the precious metals sectors, NOT stocks.
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Chief Market Strategist
Phoenix Capital Research