How Bad Will The “Bond Massacre” Get?Worse “than the 1994 ‘Bond Massacre,’” with “sustained double-digit losses on bonds, subpar growth in developed markets, and balance sheet risks for banking systems….”
By Wolf Richter, SRSRocco:

The backdrop: after 36 years of bond bull market, the amount of US bonds has ballooned to $47 trillion, up 24% from just ten years ago:

•US Treasurys ($19.8 trillion),
•Municipal bonds ($3.8 trillion)
•Mortgage related bonds ($8.9 trillion)
•Corporate bonds ($8.6 trillion)
•Federal Agency bonds ($2 trillion)
•Money Markets ($2.6 trillion)
•Asset backed Securities ($1.3 trillion)

Bonds dwarfs the US stock market capitalization ($27 trillion). Bonds are a global phenomenon with even bigger bubbles elsewhere, particularly in NIRP countries, such as those in Europe, and in Japan. That’s why bonds matter. They’re enormous. And the damage they can do to investors is huge.

So how bad might the next bond bear market get? Paul Schmelzing, a visiting scholar at the Bank of England and an academic at Harvard where he concentrates on 20th century financial history, published an unpleasant scenario on the Bank of England’s blog. He doesn’t mince words:

[A]s rates reached their lowest level ever in 2016, investors rather worried about the “biggest bond market bubble in history” coming to a violent end. The sharp sell-off in global bonds following the US election seems to confirm their fears. Looking back over eight centuries of data, I find that the 2016 bull market was indeed one of the largest ever recorded. History suggests this reversal will be driven by inflation fundamentals, and leave investors worse off than the 1994 “bond massacre.”

To arrive at his conclusion, he classifies bond bear markets into three types:

READ MORE HERE:  How Bad Will The “Bond Massacre” Get?


NEXT WEEK:  I will be putting out an article on the critical factor why the U.S. Dollar-Gold Peg was dropped in 1971.  While there has been a great deal of analysis and speculation why President Nixon discontinued the convertibility of U.S. Dollars for gold, this article provides the real data and information according to my analysis.

Also, I will be posting an article on PEAK SOLAR in California and what this means for the United States going forward.

If you have not yet listened to my interview at Future Money Trends on the ENERGY INDUSTRY IN CRISIS, I highly recommend you do below:

sd-bullion-silver-eagle-sale

Jesus Whips the Banksters 10 oz Silver Bars
jesus-clears-temple-silver-bars

  1. 2.60% is a line in the sand that has to be defended.  3% will be a game changer

    There’s $225 trillion in world wide debt   That’s 350% of world wide GDP. It’s 3 times the total global net worth.  Debt is a liability to the borrower and and asset to the lender.

    Who wins when rates go up?  
    Rates, like debt, kills  
    Rates are the collateral damage of the debt WMDs  
    Someone holds the debt. Most of the debt is secured by collateral—cars, real estate, stocks, bonds, pensions and human beings labor

    There’s no free ride when debt is 3 times and net worth of the world.

    Rate increases just further the cost of being in debt, steals from people, countries, companies, raises the transfer rate of wealth and income from the debtor to the lender

    And somewhere the s*** will hit the fan.

    The loans will be called.  The  borrowers will default.  Collateral will be seized. The loans will be repudiated.
    Call this a debt jubilee or whatever but when a person, company or country’s debt burden is 3 times their assets that can be seized, either the lender seizes the asset, maybe with force or they walk away.   Keep your fire arms close

    • @AGXIIK

       

      “There’s $225 trillion in world wide debt”

      Yep.

       

      “That’s 350% of world wide GDP.”

      Yep.

       

      “It’s 3 times the total global net worth.”

      Global net worth is significantly higher than global GDP.  GDP is merely the annual production, which is similar to a person’s annual salary.  Net worth, on the other hand, is the sum total of all owned assets less liabilities.  I suspect that this number is significantly incorrect.

      Consider this in personal terms.  A person who is just ready to retire might earn $70-80k in their final year of employment but their net worth is several times greater than this.

       

      “Debt is a liability to the borrower and and asset to the lender.”

      It is IF the borrower can pay the debt.  If they cannot then things will get sticky.

       

      “Keep your fire arms close”

      Indeed so… ammo too.

       

  2. All markets will be sacrificed including the following:real estate, bond, stocks, checking, savings, cds, money market, Ira, WITH BANK BAIL INS. So sorry customers…. Suckers…

    Stacking the pms silver and gold and cash.

  3. @Ed_B   I heard somewhere that global net worth was $75 trillion-ish but who’s counting

    Being a former banker, I looked at debt to worth   Anything north of 2 to 1 is concern

    3 to 1 is a BK going somewhere to happen and 4 to 1   fuggedaboudit    Just a BK looking for a place to happen.

    What concerns me is the personal aspect of debt to worth because most people’s stuff, cars furniture home and pension plan can be called for debt   Pension plan is tricky but if someone is going Tango Uniform they hit the 401 K or IRA   Sad situation

    Anyways, paying off debt is good but the problem paying off 3 to 1 debt to net worth or debt to GDP can never be repaid in full

    Maybe it’d be discharged in bankruptcy.  So the assets go away, the debt goes away and the person if left in poverty   I’ve seen and talked to hundreds who got hosed in the 2008-9 crash and never recovery   But someone made trillions on the other side of the balance sheet

    It just pisses me off to see that

    • @AGXIIK

       

      “I heard somewhere that global net worth was $75 trillion-ish but who’s counting”

      If it is, then we are truly in a world of hurt.  The world GDP was around $70T a couple of years ago.  It’s likely closer to $60T today.  But net worth should be considerably greater than a single year’s production, should it not?  Is yours?  I am pretty sure that it is.  I know that mine is.  🙂

       

      “Anyways, paying off debt is good but the problem paying off 3 to 1 debt to net worth or debt to GDP can never be repaid in full”

      Isn’t that pretty much what every home buyer does?  With a $75k income, they buy a $300k house?  That’s a 4:1 debt:income ratio at the start but it does fall over time as income rises, especially if interest rates fall and the loan can be re-done at the new lower rate. The mortgage is also paid off at some point.

       

      “I’ve seen and talked to hundreds who got hosed in the 2008-9 crash and never recovery”

      I also have seen a lot of this and most of what I have seen was caused via self-inflicted financial wounds.  Much of this is from the dumb money coming into a market near its top (as the smart money is bailing out) and then bailing out at the market bottom, locking in their paper losses as real losses.

      I “lost” a considerable amount of money in both the 2001 and 2008 recessions.  Both losses were in excess of $250k each.  But by staying in the market and continuing to buy, every cent of those losses was regained within the next 12-18 months… and then some.  Some say that investing is somewhat like riding a roller-coaster… “you usually don’t get hurt unless you jump out”.

       

      “But someone made trillions on the other side of the balance sheet.  It just pisses me off to see that.”

      When skulduggery is afoot and leads to such losses, I agree.  But when it is stupidity that leads to them… well, bad stuff happens to those who are foolish with their money.

       

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