Is this Beginning of the End?

Monday, February 12, 2018
In September of last year, we issued the most ominous warning in the 46 years since I first founded my research company.

We predicted a Great Convergence of historic cycles unlike any since the 1930s — a powerful tidal wave destined to transform the financial world as we know it.

That convergence started right on schedule late last year.

We warned that the first impact would be on the sovereign bonds of the world’s largest, most indebted nations.

Sure enough, those bonds have tumbled in price, as their yields rose:

In fact, as you can see in the chart, 10-year U.S. Treasury-bond prices began falling in 2016 … then stabilized for most of 2017 … and now, with the Great Convergence, have tumbled to new lows for this cycle.

That’s the fundamental force we were talking about in every webinar, report and Flash Alert last year.

That’s the force that barreled into the stock market this week.

And it’s what investors should be paying closest attention to going forward for two reasons:

First, falling stock prices can hurt key stock-sensitive sectors, especially financials.

Second, to the degree that inflation fears are the cause, it can be a great boon for commodities and commodity stocks!

So …

If T-bond prices continue falling, stock investors need to take prompt action to

Reduce exposure to the most vulnerable sectors (like brokers) …

Beef up their stakes in the sectors that benefit the most from inflation (like commodity stocks) PLUS …

Diversify beyond stocks and bonds to investments that are not correlated with the Dow (like gold bullion and even cryptocurrencies.)

(By the way, if you haven’t done so already, be sure to visit our new website dedicated exclusively to our just-inaugurated Weiss Cryptocurrency Ratings and related news.)

Falling bonds and rising interest rates are big.
Never underestimate their power and durability.

You saw it last week. The jury is still out whether it’s THE END of the nine-year bull market.

But the rising tide of interest rates tells me it IS the BEGINNING of the end, the first shot across the market’s bow.

With the Dow down more than 10%, it’s officially a “correction.” It won’t take much more to officially become “a bear market.”

I repeat: This was not caused by some random news event like last Friday’s bullish employment report. Nor can you write it off to a bunch of computers spitting out automatic trades. It’s all about the convergence of cycles and the decline in bond prices (and corresponding rise in yields).

Want more evidence that
something big is happening?

Then look at the gigantic surge in volatility that accompanied the move this week.

The CBOE VIX Index was dormant for several months, hovering around record lows below 10. But in recent trading, it exploded higher – hitting as much as 50.

That’s a level we’ve only seen once since the Great Financial Crisis — in August 2015 when China sparked a major market selloff by adjusting its currency policy.

One specialized investment designed to rise in value when volatility declines is the VelocityShares Daily Inverse VIX Short Term ETN (XIV).

It dropped more than 14% in last Monday’s regular session.

Sound bad? Then look at what happened next: XIV collapsed in the after-market, losing more than 80% of its remaining value! (That’s not a typo. It collapsed by more than EIGHTY percent!)

What Next?

No one can know with certainty what the future will bring. That’s why we watch the markets like a hawk.

But anyone who has followed us in recent years knows one thing for sure: We are not shy.

Whenever it comes time to take action, we let you know immediately. And when it comes time to shout from the rooftops, we will do that too.

That’s what we did in late 1999 on the eve of the Tech Wreck, when we rated 99.3% of all Nasdaq stocks a “sell.”

That’s what we did again in mid-2005 when we saw the housing bubble beginning to burst.

It’s also what our Weiss Ratings group is doing right now regarding all stocks, ETFs, and mutual funds that merit a Weiss Investment Rating of D+ or lower.

So, stand by for our updates!

Best wishes,

Martin D. Weiss, Founder
with Senior Analyst Mike Larson

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