I wrote an article back on July 7 called “Bond Bubble to Burst.” It’s an important topic. I’ve been predicting for a long time that 10-year Treasury bond yields could spike back up to 3% (or higher). That would send a spike into stocks, into real estate and into the broader economy as a whole.
I’ve also been predicting that gold would bounce back towards $1,400 and then crash again in the next few years.
See, in the second half of 2008 almost everything went down – stocks, commodities, gold, real estate – everything except for Treasury bonds and the U.S. dollar. They were the only safe havens.
But now, if you haven’t noticed, everything has been going up since February: gold, T-bonds, commodities, stocks… even the damn yen. That just doesn’t happen!
What if, in the early stages of the next crash, EVERYTHING goes down together, even the U.S. dollar at first – and there is no safe haven. Not for a while.
Because that’s what the smart money is telling us right now!
The “commercials” are the smart money and real hedge funders. The large speculators are the trend-following hedge funders and traders. When the futures bets of these two diverge and go to extremes, there’s trouble coming.
Look at how net long the dumb money is on 30-Year Treasury bonds at the bottom of the chart below:
Yet, the smart money is equally net short… damn.
Long-Term Treasurys Set to Reverse
This would strongly suggest to me that the bond bubble may finally be over and that spike I have been looking for will happen much sooner rather than later. Once that happens, it will defeat the Fed once and for all and we’ll see a deflationary period that will bring bond yields back down and send bond prices back up.
And that’s when the trend-following hedge funds that have been piling into this “something for nothing” trading environment, facilitated by zero interest rate policies, will get wiped out along with the central banks.
It goes beyond Treasurys, though.
Gold Set to Resume Crash After Bear Market Rally
Look at the other extreme chart on gold. The dumb money is record long on the precious metals futures while the smart money is record short.
I’ve been predicting gold will rally back towards $1,400, but that would merely be a bear market rally before the next great crash. It’s hit $1,373 and could rally still to $1,400, but the smart money is not buying this rally any more than I am.
In late 2008 when the big crash set in, gold went down while bonds went up… looks like both will be down in the early stages of a bigger crash this time.
In addition to Treasurys and gold, the smart money is short everything: stocks, commodities, and even the dollar and yen to a lesser degree. The only remaining short-term bullish play would be on the euro and British pound… and that won’t last too long.
So what if everything goes down, at least in the early stages of the largest impending crash in our lifetimes?
This is most definitely not the time to be listening to your stock broker – or the gold bugs who say gold will protect you. Neither asset allocation nor gold worked at the worst of the crash in 2008.
And it won’t work this time around, either.
This crash will be deeper, longer and even more pervasive across sectors.
There will be nowhere to hide.
Follow me on Twitter @harrydentjr
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