The Market is Already Cracking (No, Not THAT One)

Whether you were a professional trader or a passive investor at the time, you’ll never forget the stock market crash that happened on October 19, 1987.

But the funny thing is, one market had already been plunging for months long before the Dow collapsed 22.6% that day. In fact, that decline was a key driver of the ’87 crash, and the very same market is starting to crack today …

The BOND market.

Now don’t let your eyes glaze over or stop reading. For one thing, the bond market is much bigger than the stock market, around $37 trillion in total. That’s more than the market capitalization of the New York Stock Exchange and Nasdaq combined.

For another thing, the bond market is much more powerful. The cost of borrowing and the price of money are the single-most important factors determining the price of every other financial asset on the planet. That includes every share of stock and every stock ETF or mutual fund you own.

My colleague Sean Brodrick and our company’s founder Martin D. Weiss have long predicted that the convergence of powerful cycles we’re seeing right now will first impact the market for government debt. In other words, bonds.

That’s because at its heart, this is really a crisis of confidence in governments. In their ability to meet their huge debt obligations. In their ability to keep interest rates flatlined near the zero level … to keep pumping funny money into the economy … and to keep the party going with wild debt orgies all over the world.

For the last several years, bond volatility and interest rates were suppressed by massive, global central bank intervention. It wasn’t just the U.S. Federal Reserve. It was the European Central Bank, the Bank of Japan, and several other smaller banks around the world.

But the U.S. Fed has already said it’s starting to shrink its balance sheet. It’s also four hikes into a rising interest rate cycle, and nothing suggests to me (or the Fed) that the cycle is over. We’ll get hike after hike after hike in the next few years.

Then last week, the ECB joined the tightening fray. It said it would cut its monthly bond purchases to 30 billion euros starting in January from 60 billion currently. While it also extended the timeframe of its QE program by a bit, the move is just the latest tacit acknowledgment that the era of extraordinary, crisis-level policy is coming to an end.

The bond market is clearly sitting up and taking notice. Just look at this chart of the 1-year Treasury yield. As you can see, it has been climbing for the past two years, and just hit 1.37%. That’s the highest since the tail end of the credit crisis in 2008!

Or how about the 2-year Treasury Note yield? If you look at this chart, you see it looks pretty similar. The yield just hit 1.56%, a level we also haven’t seen since 2008.

If you prefer to look at longer-term Treasuries, you’ll find that 10-year yields are up to 2.44% from 2.03% in just a few weeks, while 30-year yields are closing in on 3%. Since bond prices move in the opposite direction of bond yields, we’re seeing declines across the board. Long bond futures have dropped more than 4% recently, and just hit their lowest level since May.

My take: This is just the start of a debt purging process that is going to have massive, worldwide implications. Many markets that investors believe are rock solid will prove to be incredibly vulnerable. And many markets that investors think are vulnerable will, surprisingly, perform very well.

If you want to know which is which, and how to profit, your best bet is to go here and ASK Sean and Martin directly. They’re gearing up for a webinar designed to address specific, hard-hitting questions like yours, and I would definitely take advantage of the opportunity to put them on the hot seat.

After all, it’s clear the bond market is already on the move – and that means the time for action is now!

Until next time,

Mike