Jim Sinclair has sent an email alert to subscribers tonight regarding the Treasury bond bubble. While many in the precious metals community believe that the T bond bubble will spectacularly bust and collapse in the near future due to the US’ unsustainable debt, Sinclair states that the Treasury bond market cannot collapse as long as the Fed continues purchasing US debt via QE to infinity.
Sinclair states that quantitative easing will continue to increase in size by the Fed to meet the size of US bond offerings, and that US interest rates will not rise substantially unless the Fed ceases its QE program.
Essentially Sinclair is stating that interest rates will continue to manipulated at an artificially low level by uneconomic buying of T-bonds by the Federal reserve governor typing on a keyboard, and that the pace of QE will keep pace with the pace of the US budget defecit/ funding gap, until which point the US dollar faces a collapse in the confidence of the currency itself.
Sinclair’s full alert is below:
From Jim Sinclair:
This little email may be the singular most important market relationship you need to understand as we make our way through market being manipulated everywhere by special interests both government and private in unison either by plan or planned accident.
Interest rates and the government bond market are one and the same.
You cannot predict higher interest rates if you also predict QE to infinity. QE is the non economic purchase of government and other debt securities. Therefore as long as QE expands to meet the size of bond offering, the bond market will stay bullish and interest rates will not rise significantly.
If you adhere to the prediction of higher interest rates then you are saying QE will cease or contract significantly. As long as QE is increased, as it just has been, bond bears will continue to get crushed.
You cannot separate predictions on interest rates from predictions on the conditions of the US Treasury market. Interest rates and the government bond market are one and the same.
Probably pushing my luck, but when the bond market breaks, what do you think will happen to general equities?
I believe that every effort known to man to keep the bond market a raging bull will be undertaken. As long as QE is practiced, which is non economic bond buying, the bond market cannot break. The mechanism of preventing a bond market break is positive to equities.