Jim Sinclair: Treasury Bond Bubble Will Not Pop, Fed Will Simply Increase QE

bubblesJim 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:

 

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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.

 

Sincerely,

Jim

 

Jim,

 

Probably pushing my luck, but when the bond market breaks, what do you think will happen to general equities?

 

CIGA Russell

 

Russel,

 

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.

 

Jim

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Comments

  1. Well I don’t care, I’m waiting for the Derivatives Market to Collapse and it will be overnight with no notice. IMO

    • I concur M45.  Problem with the banks is insolvency not illiquidity.  Mark bank assets to market and banks are insolvent.  When you are insolvent you are bankrupt.  And then pop goes the derivative bubble.   U.S. can always print the money to cover the bonds as Sinclair says.  But, what do you do when the derivative market collapses.  When it happens I expect it will occur over a long weekend.  Financial problems spread literally at the speed of light being fiat money is just a computer entry.

  2. Zimbabwe thought the path to prosperity was to print money to infinity as well…..didn’t turn out so well for them. Too bad the idiot politicians can’t learn from history to stop the Fed. However the Fed knows exactly what it’s doing in pushing this agenda forward…and they know exactly where/what it will lead to!!!!!

  3. Higher interest rates are after the next election cycle. We will most likely see some 5-10% corrections or worse in stocks in 24 months due to oil prices and poor earnings reports. They need more time to buy our mortgages, and play out the ME regime changes. I think they will try to get Pelosi back as Speaker, thus the concerted effort by GOP Establishment to hammer the Tea Party and weakness from GOP leaders. Putting Boehnor back in was the biggest mistake we made. That is a wrap. I also think Romney was a shill tp prevent the Tea Party from getting in. The Tea Party is our only hope for a balanced government! One they have all three branches in 2014, then they play Satan. JMHO
     

    • Agreed.  Romney was never suppose to win.  If Romney really wanted to win all he had to do was embrace Ron Paul by naming Dr. Paul as his Treasury Secretary designate.  Then the Ron Paul vote would have swallowed hard and voted for Romney.  Obama did not get anymore votes this election.  Romney lost votes.  It was a done deal. 

  4. This is the first time in the history of the world that the entire planet’s official money is based on fiat currencies created by central banks out of debt.  We are in uncharted territory.  Many have a vested interest in maintaining the status quo.  The evidence points towards something different.
     
    “To attain knowledge, add things every day. To attain wisdom, subtract things every day.”
    –Laozi,Chinese philosopher

  5. Whenever I hear about Bonds I just think of all those pension schemes that depend on the income from these devices of torture and how governments world wide are reducing the amounts on payments. Bonds have to do something, with or without QE. They will either be an investment that no one will want to touch or they will be purchased to infinity. 100% of nothing is still nothing.
     
     
    It won’t happen over night though, it will be a death by a thousand cuts. very painful, very slow. But like all pyramid schemes, it will fail.
     
    Unless governments world wide get their act together on their national debt then this is going to move faster at an exponential rate, still very slow, but the velocity will get so fast that the treasuries will have to beg the market for more and more money at rates that are even less sustainable. 
     
    even if you can do QE to infinity, one day the Piper will need paying.

  6. Then why am I paying income taxes?

    • We all “volunteer” into the income tax system by using Federal Reserve Notes.  Switch to U.S. Notes created directly by the U.S. Treasury Dept. and the income tax goes away. Pres. Kennedy began the process it in 1963. The banksters didn’t take too kindly to the idea.

    • “Pres. Kennedy began the process it in 1963. The banksters didn’t take too kindly to the idea.”
       
      No, they didn’t care for that at all and applied the usual “remedy” to the problem.  The replacement prez was MUCH more amenable to their wishes.

  7. Herbert Stein, Ben’s Stein dad, said ‘ If something cannot go on forever, it will stop’.  Jim Sinclair says QE will go on forever  If there’s anything will have to stop,  it’s QE.  Infinite money  won’t solve any  problems just like infinite medicine won’t cure a disease.  Maybe I disagree with Jim Sinclair on this point.

    • I agree with some of this article but not with the notion that printing money will prevent a massive bond collapse.  What Sinclair says in this is appropriate for NEW bonds but perhaps not for the multiple trillions of already existing bonds.  To collapsed the bond market, all that need happen is for the investors of the world to awaken and realize that bonds are one of the best ways out there to lose money.  By paying a low rate of interest in a moderately high inflation scenario, money WILL be lost.  This is compounded by the fact that interest on those bonds WILL be taxed.  There is no real gain in a bond that pays less than the prevailing rate of inflation, yet investors are told that they have a taxable “profit”.  At some point, they will figure out that they do not, they are getting screwed, and they WILL head for the exits by dumping those bonds en masse.  When, not if, that happens, the bond bubble will collapse so quickly that the Fed will not be able to print money fast enough to prevent it.  Yes, they can help pick up the pieces afterwards but the immediate financial damage will be horrendous.
       
      Historically, sovereign bonds have served a very useful function.  When governments spent unwisely, that raised the specter of default and caused the “bond vigilantes” to demand higher interest rates to compensate them for the added risk.  This served quite well to reign in government over-spending because governments did not want to see a rapidly increasing share of their GNP going into interest rate payments rather than their pet projects.  When governments managed their spending better, the threat of default was decreased and governments were able to sell bonds at a lower but still attractive coupon rate.  This system served as the brakes to slow runaway spending.
       
      Enter the Fed:  now, the US central bank has stepped forward as the so-called bond “buyer of last resort”.  When the US Treasury holds a bond auction, the last thing they ever want is to have an auction fail via having a substantial chunk of the bonds unsold.  This makes them look bad in financial circles because it looks as if they either did not understand what the market needed and offered too many bonds or the coupon rate was judged by some investors as insufficient and they refused to invest.  Either way, the Gov looks bad.  Their way of resolving this issue was to set up a system whereby the Fed would buy ALL of the bonds that did not sell, regardless of coupon rate. While this solved the Gov’s problem with unsold bonds, it also removed the brakes, allowing runaway spending to occur at will.  
       
      While the Fed normally sets the short-term interest rates and the bond market the long term interest rates, the current system by-passes the bond market, allowing the Fed to control both the short and long term rates.  US Treasury bonds no longer have to compete in the market for investor money because the Fed can zap up any amount needed to buy all of the bonds available.  At the end of 2012 the final US Treasury bond auction saw more than 70% of all new bonds purchased by the Fed.  This is an absolutely terrible situation and is one that WILL end badly.  The brakes are off and Gov spending is wildly out of control and there is now no mechanism whatever for slowing the financial train.  There be curves ahead… nasty ones… and a LONG drop into an icy and rocky river. Best of luck, bond holders.  You’re gonna need it!
       
       

    • It’s a totally fiat world now.  Different rules to the game. The QE to infinity horse has escaped from the barn. Result being the bond vigilantes no longer have the power they once had to discipline a wayward Fed because the Fed has unlimited money and is fully capable and committed to the purchase of any and all bonds. There will never be a failed auction.

      This doesn’t solve anything and creates a host of new problems. But, the Fed will be able to get away with it a lot longer than most people think because the U.S. dollar still is and will remain a world reserve currency even if it takes a few hits.

      What I expect is going to happen is that a short squeeze in physical silver and then gold will liberate or free gold from being denominated in dollars or any other gov’t fiat currency and it’s true value will be discovered. At that time wealth will be measured by how many ounces of gold and silver you have not dollars in a bank account because it will be gold that is traded for oil or finished manufactured goods not gov’t issued fiat currencies.


  8. The video cannot be shown at the moment. Please try again later.

     
    This is one of the reasons why Bank Of America Closed It Doors this past weekend. I am waiting for these bitches to close their doors. Austerity has already hit the United States. Who are they kidding. 

  9. Print until the dollar is worthless and the world rejects it. Watch the collapse begin…

    • Currency strength is all relative.  Everyone is printing so in the world of fiat the dollar looks pretty good compared to the other fiat. It’s a currency war, but the U.S has a huge advantage in that if a country attacks the dollar too aggressively they will soon have their internet connections go down. Their computers will be struck by viruses. Unexplained earthquakes will hit. And our navy will park a carrier battle group off their coast. We can be very persuasive when we want to be.

      Look to Japan. Japan is far more likely to see hyperinflation than we are.

  10. One more milestone announced today.   Our prez failed for the fourth year to present a national budget.  Print on Ben!

    • If a lowly 2nd lieutenant in the military does something as dumb as this, he gets tried for “dereliction of duty” and, if convicted, is either cashiered or spends some time in Leavenworth penitentiary.  Good thing that our lofty politicians do not have the same standards as a lowly shave-tail.  :-(

  11. I don’t nessarily agree that the T Bond bubble will not fail. More and more money printing will continue to drive the dollar’s value in the tank. Foreign buyers of the bonds will rapidly lose confidence in the bonds and will no longer buy them.
    Just remember when the interest rates rise on the bonds, people are selling, when the genius’ of the Fed buy them, the interest rate goes down and down. Banks are required to purchase Treasuries. The interest made goes to the U S Treasury, if the Fed keeps buying it’s own debt and the treasuries interest rates continue to drop why would the bonds not bubble and pop?
    If any of the article on the following link makes sense, tell me where Bonds will go….up ot down?
     http://agorafinancial.com/reports/AWN/BILL/Bubble_072312.php?code=MAWNP200

    • It’s a different ball game today.  The Fed has unlimited money can can purchase all the bonds.  The bond vigilantes know this and will not attack like they have in the past.  Interest rate on the 10yr floats up because the Fed allows it to. Because the flip side is all the pensions are calculated on an 8% rate of return. The Fed is walking a tight rope and they know it. So far they’ve been pretty good at it, but in the end they have way too many variables to contend with. And like all complex systems the global financial system will crash. It just won’t be the U.S. dollar that causes it.

    • “The bond vigilantes know this and will not attack like they have in the past.”
       
      I’m thinking that it will not so much be an “attack” as a shrug followed by them simply exiting the market and walking away.  The entire bond situation is becoming untenable for investors.  That can’t and won’t continue indefinitely.
       

  12. Ranger   Bonner and Wiggins along with porter Stansberry were the ones who first kicked off my quest for knowledge into the world of alternative news and all those stories we read about ‘things that go bump in the night’  I’ve subscribed to half a dozen of Agora’s periodicals but only use maybe one or two now.  they are masterful shills and will sell you 5 figure subscriptions that cover everything subject in the world, some of which contradicts others of their news letters.  Much of it is what stocks and other investments to buy today.  All this self promotion does not take away from the facts they present.  As for the bond market collapse, probably not this year unless the Japanese continue with their Yen Devaluation and cripple a few economies along the way, including the Euro zone or Greece dominoes into Spain, spain into Italy and so on  The bond values that represent the bank collateral and the trillions of derivatives behind that will collapse Euro. I’m not sure if benny can print fasst enough.  The derivative failures crippled the Banca Monti in Italy.  Monti and Draghi are part of that mess and its costing another few billion to bail that bank out again. Bank stock trading was halted in Italy today with Spain and Italian stock markets down 4.5to 5.0%  Bond rates just jumped a bunch too, so the bond values dropped. These 3 countries are getting ready to do the Ugly on Europe and it might happen by mid year but don’t short the bond market on that. Benny and the jets might come to the rescue.
    you can get twice in info from SD and a couple of Doc’s favs and do it for free. 

    • “ The bond values that represent the bank collateral and the trillions of derivatives behind that will collapse Euro. I’m not sure if benny can print fasst enough.”
       
      That’s just it, AG, he can’t.  Hell, we even have proof that he can’t in the AIG disaster.  AIG was saved from complete collapse via direct Gov intervention because they knew that if it was not saved, it would trip every derivative payment from here to breakfast… and if that happened, the resulting situation simply could not BE saved.  GAME OVER.  They HAD to avoid that at any and all cost… and they did.
       

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