Are we heading toward a Bond-Market Crash?

Dear PGM-Capital Blog readers,
Yesterday, July 24th 2012, based by fear, investors fled into US-Treasuries with the consequence that the yield of the 10-year note depreciated to a 50- year low of 1.39% as can be seen from below charts.

Yield 10 yearnote, July 24, 2012 – Intraday-

Yield 10-yearnote -all time chart-

Subsequently the USD Index rose to a two year high of 84.1.

Buying 10 year US-Treasuries at yield of 1.47% is more or less equivalent with buying a security with a P/E ratio of 71.94, 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.

US-Treasuries are profiting now from the fear-trade due to the debt and budget deficit crisis of the PIGIS. But what will happen when investors and traders, realize that the debt and budget deficit from the USA is even worse than the average of the PIGIS and that the fear-trade should be the trade way from the US-Dollar?

After reading the above please ask yourself the following question:

  • Do you want to lend money for 10 years to a country with a Debt to GDP above 103%, a budget deficit of over 50% and which has raised its debt ceiling 77 times since president J F Kennedy?

If you answer the above question with a categorical NO, you should agree with us that currently US-Treasuries are  in a bubble and it isn’t if, but when this bubble will burst.

The consequences of the burst of US-Treasuries will be beyond most people imaginations such as, interest rates shooting through the roof, the FED to become the only buyer of US-Treasuries, which will dilute the purchasing power of the US-Dollar and create hyperinflation.

Gold, the canary in the Coalmine, by being slightly positive for the last 60 days, combined with an ascending “neckline” as can be seen from below chart, is telling us that a burst of US-Treasuries is much closer than most people believe.

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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