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442: Bond rates rise - beginning of the end game bond crash

08-26-2012 team

End Game Closer: Things are beginning to turn towards the end game crisis. The following moves have begun in the last few weeks:

·         Dollar decline 2%

·         Oil price rise 15%

·         Gold price rise 10%

·         Silver price rise 20%

·         Long dated US bond rates rose 20%

·         Euro has strengthened

·         Global economy has further slowed down

QE3 Expectation: Most people probably think the up-trend in the stock market and gold is from the renewed expectation of more quantitative easing – likely partially true – inflation expectations are rising. But the key is to keep a close eye on the bond markets – the minute the bond market really starts to see higher rates, especially short term, rising sharply, then the bond bubble could be bursting.

Dollar Run Soon: Then this could be the start of the big run on the US dollar and US bonds. In the lead up to the US Election, it’s almost for certain Obama will get into power again and with it the Fed will continue printing money like there is no tomorrow. When the US fiscal cliff is reach 1st Jan 2013, we think there will be a crash in the US of some shape or form – as the country slips into recession.

Panic 2013: There will be a deflationary period – the Fed will panic and do the only thing it knows to do – print more money. But this time, the international markets will take freight – possibly because of threats of war with Iran, then there will be a run on US Bond markets – at which time interest rates will rise sharply in the US and then the general crash will occur.

Silver Shorts Bust: At this time, gold and silver prices will sky-rocket – they will go ballistic very quickly within months – and climb to levels never seen before. JP Morgan will no longer be able to supress the price of silver and the GLD will be found to have very little gold backing it. Anyone with physical gold and silver in their possession will be the winner – period.

Bond Market Bubble: Anyone in US Bonds at the moment – you have to get out - NOW! The bubble is starting to pop we believe – just in the last few weeks.  As the US slips into recession immediately after the US Election – the bonds will crash and the end of the biggest bubble in the last 100 years will become evident.

Suppression: It’s worth re-iterating that the gold and particularly the silver markets have been manipulated by the US government via JP Morgan for years. They are in cohorts with this bank to short silver using paper promised to try and suppress the gold and silver price to make the dollar look strong and secure. JP Morgan is now a weak bank propped up by a government finances that could look very weak in the coming months. If JP Morgan is not able to manage its gigantic short position and margin calls – then the lid could be released at long last on the silver and gold markets – for both precious metals to find their true market value. This could be three times higher for gold and 5-10 times higher for silver. In summary, if JP Morgan gets into financial trouble – its time to buy even more silver and gold.

Eurozone Focus Will End: At the moment all the news is about how badly the Eurozone is doing because of the European debt situation. But did you know that next year’s Eurozone borrowing requirements will be an average of a meagre 3.2% of GDP, whilst the US will be 6.7% as will the UK. When people finally get to realise at least the Eurozone is trying to show some discipline overall, and then switch attention to the US debt problems – there should be a general run on the dollar, more money printing and higher inflation with oil, gold and silver prices rising sharply as smart investors flee the dollar for real assets, as a hedge against inflation.

30 year Bond Market Bubble: For the last 30 years, there has been a gigantic shift towards paper dollar financial “assets” in the form of bonds, treasuries and dollar debt. In 2013 it should be the beginning of a big final shift towards real assets like commodities – oil, gold, silver, artwork, metals, wood, farmland and agriculture. The banks and bankers will be hurting as inflation starts to run away again and US interest rates are forced up by failed bond auctions.

Property Key Part of Portfolio: With regard to property, even wondered why top end property prices keep rising? The reasons are:

·         Wealthy people buy property as a hedge against inflation

·        Wealthy people use cash to buy the property – offloading cash because savings rates are so low and bonds are so risky (default risk) – after a major inflationary period, the rich person holds a real asset of value rather than a currency that is destroyed

·         When inflation kicks in, the rich get richer and the middle class gets squeezed – with more poor people – with less money

·        As social unrest spreads, rich people often sell businesses and exit countries – than shift their cash into property in prime areas around the world in safe areas – London is a classic example (Middle Eastern, Russian and African money comes flooding in) – this is also true if nationalisation looks imminent – people get out with their cash into property in safe haven areas like London

Commodities Power House Mid-West:  In the USA, the areas that will benefit the most in the next ten years are places highly exposed to agriculture and commodities (as long as severe droughts don’t set back the farming industry). So in 2013, expect property prices in the following areas to rise:

·         Texas – oil/gas/farming

·         Oklahoma – farming/oil/gas

·         Louisiana – gas/oil/farming

·         North Dakota – gas/oil/farming

·         Wyoming – forestry, coal, gas, farming

·         Colorado – farming, some oil/gas

Finance Will Struggle: Places that will struggle are those exposed to the banking industry, lack of water and tourism – so steer clear of New York, California, Miami and Arizona for now. These areas do benefit from expanding population, but their state finances are generally in a mess and if the banking industry has a meltdown due to the bond market bubble going pop, these areas will suffer more than most. But areas with oil, gas and farming will benefit as high inflation spurs a commodities boom. North Dakota is a highlight with massive booming employment and a doubling of oil production in the last five years. If you are 30 years old and want to make serious money, go live in North Dakota and buy cheap apartment blocks for high rental.

Gun Crime – Watch Out: A closing thought on the USA. One of the biggest problems – though little discussed – is the amount of guns in the USA. Because things are fairly stable and secure at this time, it’s not really on the radar screen. But if social unrest breaks out from economic turmoil – say after the bond market goes pop – then expect a massive escalation in gun crime. Back in 1993 in New Orleans, there were 421 murders in one year in a population of 490,000 people. That’s one in a 1100 getting murdered each year. Things have improved remarkably since then (175 murders with lower 310,000 population), but if the economy goes pear shaping, it’s quite possible when people get desperate to either feed themselves or protect themselves, shootings will sky-rocket. This is one of the reasons why so many people flock to London – because it is so safe compared with most big cities around the world. The amount of crazy shootings seems to be on the increase in the US, and we are frankly rather concerned that in 2013 things will go in completely the wrong direction (like they did in Mexico a few years ago).

High Rates: One thing suppressing gun crime is the latest technology (DNA) and surveillance (video, monitoring) – this helps clear-up rates. But if an economic meltdown occurs, there could be widespread disorder than means the normal systems break down. And you won’t necessarily be much safer in rural areas. Just something to bear in mind – the highest murder rate in the world is Honduras in Central America – with Jamaica, Venezuela, Columbia, Guatemala, Bahamas and Mexico all very high indeed –  the west is not the safest of places. Better off in Oceania – despite relative poverty, there are almost no murders. 


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