- About that “bursting bond bubble” we studiously ignored…
- Rickards on an epic bond rally in the making
- “Ridiculously overwrought”: Stephen Petranek sets the record straight on a cancer cure trial
- Texas brings the gold home… but can it make gold currency again?
- “Everything wrong with socialism”: The feds bring down Big Soccer
- Candid questions about the IMPACT system
See if you can spot a common thread among these three recent headlines…
“It seems,” our Jim Rickards writes wearily, “that every time you turn on financial television or go to a financial website, there’s an analyst warning you about a bond bubble about to burst. The commentary usually consists of the observation that ‘interest rates are near an all-time low’ and ‘have nowhere to go but up.’ There’s not much more to the analysis than that.”
Sometimes the “analysis” will be accompanied by a chart of the yield on a 10-year Treasury note. (Remember, bond yields move inversely to prices. So rising yields indicate falling prices.)
Right. As if this movement in late April and early May signifies anything…
The “analysis” reached a frenzy in early May. We did not partake in any of this mouth-frothing here at The 5. Jim Rickards told us all along it was no big deal, so we didn’t see fit to even bring up the subject.
But in case you’ve seen headlines like the ones above and are wondering if we’ve been derelict in our duty — ye of little faith! — we dive in today…
In reality, “interest rates are near all-time highs and could drop significantly,” says Jim, “setting off one of the greatest bond market rallies in history.”
No, Jim hasn’t lost his mind. “When the typical analyst talks about interest rates,” he explains, “they are looking at the nominal rate, or the rate you actually earn in interest payments when you buy the bond.”
Jim focuses on the real interest rate — the nominal rate minus inflation.
As we write this morning, a 10-year Treasury yields a nominal 2.16%. Indeed, that’s near historical lows. “But recent inflation reports have shown negative inflation, technically deflation,” Jim goes on, “which puts the real rate at about 3.0%, extremely high by historical standards.
“Compare today’s real rate of 3.0% with the real rate in 1980. At that time, long-term bond rates were about 13%, but inflation was out of control at about 15%. When you subtract 15% from 13%, you get a real rate of negative 2%.
“Today’s real rate of 3.0% is five percentage points higher than the real rate in 1980! That’s what we mean when we say real rates are near all-time highs.”
How low can rates go? “We need look no further than Japan and Germany for the answer,” says Jim.
Those countries are advanced developed economies with deep liquid bond markets like the United States. Nominal interest rates in Japan and Germany have been in a range from negative 0.5% to positive 0.5% for months.
If U.S. nominal rates fell from 2.3% to 0.3%, similar to Japanese and German rates, that would represent a full two-percentage rate drop in U.S. nominal rates.
“A two percentage point drop in U.S. nominal rates from current levels would be one of the most dramatic bond market rallies in history.”
What might be the catalyst? Jim sees two things — recession and a geopolitical shock.
We’ve chronicled a spate of lame economic numbers in recent weeks — GDP, retail sales, consumer spending. They’re borderline recession numbers… and they’re “completely inconsistent with real interest rates of 3.0%,” says Jim. “In fact, that sky-high real rate is one of the reasons growth is so weak.
“Since the Fed cannot stimulate by cutting rates that are already at zero, the bond market will have to do the Fed’s job for it.
“Then there is the possibility of a geopolitical shock that would send global investors running into the U.S. Treasury market in a flight to safety.”
Here too there’s no shortage of potential flare-ups — Ukraine, the South China Sea and that perennial favorite the Middle East.
“Given the current high level of U.S. real interest rates, either a recession or a geopolitical flare-up would be enough to trigger a bond market rally,” Jim concludes. “The possibility of both happening in the next six months cannot be ruled out.”
The way to play it is the way Jim has suggested previously here in The 5 — the Wasatch-Hoisington U.S. Treasury Fund (WHOSX). It’s up a modest 5% since he recommended it to his readers six months ago. About the same as the S&P 500… but with a lot more potential the rest of this year.
[Ed. note: While Treasuries will be a safe haven from the next recession or geopolitical blowup… several other asset classes will be at severe risk.
Jim is nearly done refining a revolutionary way to look at the global financial system. He calls it his “House of Cards” thesis. One industry, he tells us, looks especially vulnerable.
He will reveal the fruits of his research — complete with an actionable investing strategy — to a select audience of our readers next month. If you’re among them, you’ll learn about it from Jim before anyone else. You’ll have in-person access to Jim few people get. And we’ll put you up in a five-star hotel room for two nights.
But we have only a limited number of seats available. At most, we can accommodate one-half of one percent of our readers. Your exclusive invitation, direct from our executive publisher and 5 founder Addison Wiggin, is at this link.]
The major U.S. stock indexes have recovered about half of yesterday’s losses. At last check, the S&P 500 stood at 2,117.
The greenback has added a bit to its big gains yesterday, the dollar index near 97.4. That’s sent gold down a bit more — the bid $1,187 as we write. Crude is holding steady at $58.04.
Last week brought a milestone in the search for a cancer cure.
Our high-tech biotech maven Stephen Petranek tipped us off last fall to one company’s bold quest: Doctors take blood from a cancer patient and put it in an extremely high-tech version of a test tube. In the test tube, T cells are withdrawn from the blood and re-engineered so they can identify and attach to a specific kind of cancer that’s growing in that patient.
“The new T cells are infused into the patient,” Stephen explained, “where they multiply, proliferate and grow.” The process takes all of six days.
Last week, the firm announced it had dosed its first patient in a Phase 1/2 trial FDA trial for lymphoma. “This is a big deal,” Stephen says, “because speculation has mounted about whether the trial already had begun and if any patients had died, and the stock’s price has been under pressure as a result.”
Stephen calls that speculation “ridiculously overwrought.” He points out about 18,000 people in the United States get bone marrow transplants annually and 35% don’t survive a year. That’s the context in which the trial must be viewed: “If only 50% of these patients survive, but they survive for years and are essentially cured, the therapy will be incredible. It’s already shown incredible possibilities to actually eradicate cancer from the body.
“We are on the edge of something we’ve never seen before — a cure for many cancers,” he concludes. “If one or two or three of these patients die soon after they are dosed, the odds are still far greater for success than anything we’ve ever had before.” Stephen’s Breakthrough Technology Alert readers are still up 60% after the recent sell-off… and he thinks the best is yet to come.
Texas is poking a finger in the eye of the Federal Reserve — not that anyone wants to put it in those terms, heh.
The background: In 2011, the University of Texas endowment disclosed it took delivery of $1 billion in bullion — held in bar form at a vault owned by HSBC in New York.
By 2013, The 5 was chronicling how many politicos in the Lone Star state wanted to bring the gold home. “If we own it,” said then Gov. Rick Perry, “I will suggest to you that that’s not someone else’s determination whether we can take possession of it back or not.”
If that argument wasn’t convincing for lawmakers, the potential cost savings were: At present, the endowment holds 5,610 gold bars worth $645 million. HSBC is charging $108 per bar for storage — more than $605,000 a year.
The wheels ground slowly, but grind they did: This month, both houses of the legislature voted to establish a gold bullion depository, at a site yet to be determined. The bill now goes to the current governor, Greg Abbott.
So what’s it to the Fed? The bill also allows private individuals to store their own gold at the depository. They can then set up an electronic account and use it to make payments to other people or businesses who have an account.
“The key is to make it so people can use gold and silver instead of fiat paper money,” says Michael Boldin of the Tenth Amendment Center. “These bills won’t nullify the Fed on their own, but they’re an important step forward in that direction.”
“FIFA exemplifies everything that’s wrong with socialism,” our fearless leader Addison Wiggin weighs in on the day’s big news story.
The feds have indicted 14 people — seven of them leaders of soccer’s global governing body, FIFA — for a quarter-century worth of bribery schemes, including the awarding of 2010 World Cup host status to South Africa.
Addison is a soccer dad and follows the sport more thoroughly than many Americans. He finds FIFA a cesspool: “Just as corrupt as the International Olympic Committee, overrated socialist thugs. The elites make all the rules behind closed doors and accept millions in bribes for agreeing to host events in the country of the highest bidder. How else would you get the 2022 World Cup in a desert oasis like Qatar?”
How, indeed? Two months ago, FIFA moved the event from its usual summertime slot — when temperatures in Qatar reach a high of 106. Instead, the tournament will be played late November and December, when temperatures are around 80.
That’s assuming the indictments don’t result in Qatar losing the event altogether now…
“Just some feedback for your consideration,” a reader writes: “I’m interested in Rickards’ IMPACT system. FX exposure, et al., are a concern for me.
“However, my biggest hesitation in signing up is that I don’t know what it’s all about. It sounds like it’s buying options of some sort. However, the very fact that you don’t want to be open and transparent about it puts me off.
“Also, what about his track record? I don’t want to hear blurbs on back-testing — what about real-life experience? If you actually traded in the market with actual trades (instead of theoretical trades/prices that may not be achievable), I would be more convinced.
“The 30/60-day money-back is not attractive simply because you slap on a 10% admin fee. I understand why you’re doing it, but that’s not free. That’s paying for 30/60 days of his subscription.
“Until you can be open on the above, I simply won’t bite, much as I would like some advice on my FX exposures. I’d rather go with some other newsletter that’s at least more open about it.
“Looking forward to a response.”
The 5: “Since currencies are intertwined with virtually every aspect of the global economy,” says Jim, “these moves end up creating ripple effects on the stock market and the options market… which in turn can set up very profitable trades in both of these markets.
“That said… our extensive back-testing shows the MOST profitable trades occur in the options markets. Each alert you’ll receive in Currency Wars Alert will tell you exactly what specific investments you’ll want to use in each particular situation.
“But remember, IMPACT isn’t options trading like you’ve ever seen before. There is no writing of options, as you’d need to do with strategies based on covered calls or selling naked puts.
“IMPACT isn’t a complicated ‘advanced’ options trading strategy. Instead, it is a predictive system and hedging strategy designed to be simple yet elegant.
“IMPACT is also a new mindset. The same mindset that I use… one that can let you unlock profits from currency markets… from multiple currencies at once… and from currencies going up, down or sideways.”
We hope that answers the question. There’s a comprehensive FAQ answering questions just like these when you click here.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. “What we are planning is truly a once-a-lifetime event,” says Addison with a final note today. “Perhaps the most important event we’ve ever put together at Agora Financial.
“You’ll never be caught off guard by a financial crisis… bubble… or panic again. You’ll be able to identify opportunities even in the worst bear markets.”
And Jim Rickards will be your exclusive guide. For unprecedented in-person access to Jim’s insights, here’s where to go.
