Are we currently living in the era of the Treasury Bubble?

Dear PGM-Capital Blog readers,
During the last 3 years we have been warning investors for the crash of the ultimate Bubble, the Bond market.

In the course of history we have seen a lot of bubbles forming and subsequently bursting. The most recent ones were the IT-Bubble of 1997- 1999 and the housing market bubble of 2002-2007. In all these cases bursting of the bubble wiped out hard saved money.

The question most investors should ask themselves is,

Are we currently experiencing another bubble being formed?

If yes, which one?

 “Economic Bubble” definition: (Wikipedia)
An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania or a balloon) is “trade in high volumes at prices that are considerably at variance with intrinsic values”.
It could also be described as a trade in products or assets with inflated values.

Based by fear, investors are currently fleeing into US-Treasuries with the consequence that the yield of the 10-year note depreciated yesterday, June 1st 2012, with 11 basis points to a 50- year low of 1.47% as can be seen from below chart.

The yield of the 10-year Notes of financially stable and AAA rated countries like Germany (1.2%), Denmark (1.03%) and Switzerland (0.55%) are even lower.

Buying treasuries at a yield of 1.47%, 1,2%, 1.03% and 0.55% respectively is more or less equivalent with buying a security with a P/E ratio of respectively 68.02, 83, 97 and 182, which is much higher than the P/E ratio of the NASDAQ-100 during the high days of the IT-Bubble at the end of 1999.

Based on our above definition of an Economic Bubble, it should be clear for everybody that based on the current yield of 10-year notes we can conclude that these figures are indicative of a Huge Bubble.

With current meltdown of financial markets and bad economic news, we believe we are on the brink of a massive money printing campaign by Central-Bankers trying to save the world going into a depression.

Massive money printing combined with the current bubble stage of the bond market will lead to a massive sell-off of the bond market and flee into precious-metals and stock of their producers.

A crash of the bond market will lead also into a crash of cash and cash deposits, which will wipe out savings, entitlement programs, social security and pension funds.

A bond-market crash will increase the yield of the 10-year-note, which will have a negative effect on the stock market and real-estate market. This is why a crash of the bond-market is called the mother of all crashes.

The only bright spot during this crash will be GOLD, SILVER

and other precious metals.

Due to this we advise investors and the middle class to exchange their paper or fiat-money for Real Money: Gold, Silver, and other precious metals.

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Commodities, Precious metals as well as the stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Yours Sincerely,

Eric Panneflek

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