With continued volatility in global markets, today one of the greats in the business sent King World News a powerful piece warning that all hell may finally be ready to break loose in global markets. He also discussed what is happening in the metals and currency markets.
By Bill Fleckenstein President Of Fleckenstein Capital
May 5 (King World News) – Once again world bond markets were under pressure, with nearly every major market trading lower. German 10-year bunds, which I have been discussing frequently, are now yielding 51 basis points (up from a mere six points a couple of weeks ago, as I noted yesterday).
Has The Bond Bull Market Breathed Its Last Breath?
I obviously do not know if the bond bull market (worldwide?) has finally breathed its last in its nearly 30-year-long run. I could certainly believe that would be the case, given how far yields have come since the early 1980s when long-term Treasuries yielded nearly 15% in America.
What a lot of readers have trouble getting their head around is how the bond market (or any financial market, for that matter) can exhaust itself on the upside with QE still underway in many countries. Part of the reason for the confusion about markets literally being able to do anything is because most people have only seen financial markets levitate while under total control of the central banks.
World Economy And Financial Markets In For A Very Tough Period
Any experience before 1990, however, or a reading of history, would disabuse most people of what they've "learned" over the last 25 years. I cannot stress enough how different the world will look when the bond market doesn't respond to what central banks have dictated. In short, financial markets would have to stand on their own, because if bond markets no longer respond to monetary easing, the world economy and financial markets are in for a very tough period.
In Bill Gross's recent column he noted that $55 trillion in debt has been added to the world's balance sheet since the financial crisis in 2008 (with ridiculously low coupons attached, I might add). Thus, an enormous amount of firepower has already been spent to move these markets to where they are.
Is All Hell About To Break Loose?
The bottom line is that change is coming. It's impossible to say if what we've been seeing in world bond markets is the start of it, but I am paying much more attention than I have in the past, as it is beginning to look like more than just noise. I am actually salivating at the chance to do some short selling in the stock market, but I don't want to jump the gun, and I really want to get past Friday's nonfarm payroll report before doing much of anything.
With that preamble out of the way, our stock market was weaker early on, led by the Nasdaq, which lost 1% compared to minor losses for the Dow and S&P. The early slide gained momentum and by the end of the day the S&P had lost over 1% while the Dow lost a bit less and the Nasdaq 0.5% more.
Volatility Increasing In Gold And Silver – Upside Momentum Possible
Away from stocks, green paper was weaker, as was the bond market (once again). Oil managed a 3% gain, and the metals were modestly higher (after having gained about 1% early on). As I noted yesterday, volatility really has started to pick up in precious metals, but more importantly, downside days no longer seem to feed on themselves. On the other hand, we can't really establish any upside momentum, but the former is a precursor for the latter to be possible. ***To subscribe to Bill Fleckenstein's fascinating Daily Thoughts CLICK HERE.
***ALSO JUST RELEASED: This Will Trigger More Stimulus From The Fed And The Buy Point Of A Lifetime Before Gold Surges Above $10,000 CLICK HERE.
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