10 - Year Treasury Note Yield Collapses
In a recent interview, Michael Pento, founder and president of Pento Portfolio Management, predicted a global recession and a boom in gold prices.
Pento said the recent bond rally is "absolutely stunning." He, like many others, believed that "the Fed's taper would bring the 10-year closer to 4%," but he always had the caveat that "the one and only reason why the Fed would be getting out of monetizing 100% of the Federal deficit" was "if the economy cratered," which is "exactly what happened during Q1." Now the government and the mainstream media are telling everyone that Q2, Q3 and Q4 are going to see better than 4% annualized growth is highly questionable.
"I believe the collapse in the 10-year note will be very close to zero," Pento said, "Not only because of our own internal, intrinsic weakness," but also because China's economy, especially their real estate market, is slowing. China's 10 biggest banks reported that late payments on loans reached a 5-year high. Pento argues that, "The crumbling economy in China, the insolvency in Japan and our own intrinsic economic weakness will lead to "a global recession/depression, and that is the only reason why the yield on the 10-year note has gone from 3% to 2.44% in the matter of just a few months in spite of the fact that the Fed is tapering bond purchases" and political leaders and the mainstream media are saying that economic growth is about to accelerate.
World Debt Bubble Is About To Burst
The picture the mainstream media and Washington paint of growth is unrealistic. Q1 GDP growth was an anemic 0.1%, Homeownership rates are the lowest since 1995, 49% of Americans are on some form of government assistance, and the unemployment rate is still at 12.3%. The labor participation rate is 62.8%, which is the lowest since 1978. There are 1.3 million fewer jobs than when the Great Recession began. We are also "in the midst of a huge debt bubble." Chinese government debt is up 25 times since the year 2000, while Japan has $10 trillion in debt, which will take 56% of government income to just pay the interest on in the near future.
Investors are willing to accept such low yields on bonds because it's better than getting crushed by equities as they did in 2008. The stock market is massively overvalued. The total market cap compared to GDP is above 100%, while the average back to 1990 is 57%.
We could see a huge plunge in about late June or early July as the Fed continues to taper, which should be good for gold. Initially we could see a period of deflation, similar to the end of 2008 and beginning of 2009. Gold fell at that time, but then came roaring back once we had a very aggressive central bank intervention and you are going to see that later this year….[as people see] that this economy is not getting better and that it [the economy] cannot function with QE the way they want it to.
If you want to make money long-term, you have to bet against the prevailing consensus of most financial experts. I have never seen such an overwhelming bullish consensus as there is today that the economy is going to do great, that gold is a sell, and that the stock market is going to go higher, and if you want to build speculative wealth, you have to bet against that.
Gold and Silver Past, Present and Futures Swings
The gold and silver markets have extended their corrective patterns during this most critical and decisive period of time and price. A cluster of major short-term, intermediate and long-term cycles converge around this time frame from late December to the August/September time frame. This is another reason why the expected bottom that started back in late December of 2013, is in the process of completing a major 6 month bottoming process ending by June 28, 2014.
The gold and silver markets are indicating the weekly trend is down. A very good indication of increasing probabilities the cyclical expectations for a multi - year bottom completion will be validated by making new lows during this time frame.
The weekly downtrend signals gold could drop to the .786 Fibonacci retracement at $1231 into the final June time frame, a completion of this second corrective wave usually takes place at these levels and it could unfold anytime.
Short-term, intermediate and long-term traders/investors should use this final window of opportunity to trade short - term and accumulate to build a long - term bullish position as current prices are truly in a historic environment when fortunes can be made in a relatively short period of time. The next 2 to 3 years will go down on the books as such a period of time in history.
Let's take a look technically at a few ETF's in precious metals and see what trading opportunities we can identify for next week.
The contract closed at 120.43. The market closing below the 9 day MA (123) is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral.
With the market closing below the VC Weekly Price Momentum Indicator of 121.04, it confirms that the price momentum is bearish. A close above the VC Weekly, would negate the bearish signal to neutral.
Cover short on corrections at 119.01 - 117.59 and reverse to go long on a weekly reversal stop. If long, use the 117.59 as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 122.46 - 122.49 levels during the week.
The contract closed at 22.50. The market closing below the 9 day MA (23.75) is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral.
With the market closing above the VC Weekly Price Momentum Indicator of 22.48, it confirms that the price momentum is bullish. A close below the VC Weekly, would negate the bullish signal to neutral.
Cover short on corrections at 21.95 - 21.93 and reverse to go long on a weekly reversal stop. If long, use the 21.93 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 23.04 - 23.57 levels during the week.
The contract closed at 18.08. The market closing below the 9 day MA (18.74) is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral.
With the market closing below the VC Weekly Price Momentum Indicator of 18.17, it confirms that the price momentum is bearish. A close above the VC Weekly, would negate the bearish signal to neutral.
Cover short on corrections at 17.82 - 17.56 and reverse to go long on a weekly reversal stop. If long, use the 17.56 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 18.43 - 18.78 levels during the week.
The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts.
TRADING DERIVATIVES, FINANCIAL INSTRUMENTS AND PRECIOUS METALS INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR EVERYONE. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AGOL, AGQ, DBS, DGL, DGLD, DGP, DGZ, DSLV, DZZ, GLD, GLDI, GLL, IAU, PHYS, SGOL, SIVR, SLV, SLVO, TBAR, UBG, UGL, UGLD, USLV, USV, ZSL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.