What the professional investor does first, the amateur does last.
In 2009, stocks were at their most attractive valuations in more than a generation. Had you known back then what you know now about contrarianism, you’d be a wealthier man. This sentence can be applied to every person on the planet, but what you should absolutely refuse to do is to succumb to your emotions and go “heavy” in the big rally that’s approaching.
Follow the mindset of being close to the fire, so it warms you up, but doesn’t light your clothes on fire.
Courtesy: U.S. Global Investors
As you can see, bond yields are staging a big rally right now, which is detrimental for holders of Treasury debt.
I remind you that bonds are comprised of two things:
- Face Value: The price of the bond.
- Coupon: The interest payment you receive.
As the yield or the interest payment goes up, the face value goes down, which means trillions of dollars are being lost right now.
Portfolio Wealth Global covered this topic at length, highlighting that in the future economic environment we forecast, both the face value and the coupon payment, will be a horrendous investments.
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Not only do we see higher interest rates, which will demolish current face values by tens of percent, but higher inflation will wipe-out the purchasing power of the fixed-income payment of the coupon.
This is a big reason we don’t see smart money returning to bonds anytime soon, but since we believe a sideways market for stocks is possible, starting 2020 through 2023, we remain extremely bullish on commodities, especially inflation hedges, such as gold, silver, copper, and zinc.
The last time the jobs market was this tight in 1999, the market crashed, then suffered from an eight-year sideways action, while the Federal Reserve slashed rates, creating a fake real estate boom and a real commodities boom.
The risk with a tight jobs market is that employers have to start laying-off at the first sign of trouble, which not only impacts the general economy, but the morale of the country’s citizenry.
In other words, higher bond yields are great news for those rare individuals, who have done everything in their power to get ready for the end of the bull market in U.S. equities and have positioned in the gold sector, for example.
This is not the end, of course, but it does mean we’re in the final scenes of this long movie.
Courtesy: U.S. Global Investors
It’s been an amazing ride, but, as you can see from the chart above, the PMI, which is always a predicting tool, 12-18 months in front of the curve, we’ve peaked in growth.
We’re officially in bubble territory.
It’s going to be WILD!
Research Partner, PortfolioWealthGlobal.com
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This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. The information herein is not intended to be personal legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.