Silver Lows and Bubble Bonds

T bonds have been levitated higher as central banks aggressively pushed their “Inflate or Die” QE process.

Examine this log scale chart of monthly T bonds since 1985. I have drawn a red line that more or less connects the most significant tops in the past 30 years.

Bonds

  • After each touch of the thirty year log-scale resistance line the T-bond market fell substantially.
  • Peaks have occurred about every six years with an extra peak in 2012.
  • The rise over the past 17 months has been steep.
  • Yields are at all-time lows and prices are amazingly high. It looks like a bubble.

WHAT ABOUT SILVER?

Examine the following chart.

Silver

  • The green circles on the silver chart show the important HIGHS in the bond market.
  • The 1986, 1993, 2008, 2012 and 2015 lows on the silver chart match the T-bond highs quite well.
  • The 1998 and 2003 T-bond highs occurred after the silver market lows that occurred in 1997 and late 2001.
  • Silver prices rebounded after all of those lows.
  • The rebounds after the 1998 and 2012 lows were small. The other lows produced sizable rallies. I assume we will soon see a sizeable rally after the March 2015 silver low, but we wait for confirmation.
  • T bonds are financial and paper assets. It makes sense that major highs in bonds would occur near major lows in commodities, such as silver.

But there is more!

Examine the log scale chart of the S&P for 30 years.

S&P

  • Note that T-bond HIGHS in 1998, 2003, 2008 and 2012 match the LOWS in the S&P at approximately the same time.
  • But the 2015 S&P high violates the pattern seen in bonds since 1997. Based on the past 20 years, the 2015 T-bond high should have marked a major LOW in the S&P.  It did not.  Both the bonds and the S&P hit a significant high in 2015.  Was this a double-bubble high?

COMMENTS:

  • Bonds look like they have bubbled up to an unsustainable level.
  • Instead of an S&P low in 2015 we see an S&P high. I think the S&P, thanks to QE, has also bubbled into a major high.
  • QE and HFT (High Frequency Trading) are powerful forces supporting the T-bond and stock markets. “Extend and pretend” is alive and well in the T-bond and S&P markets.
  • I think bonds and the S&P are vulnerable to a large decline. I think they are likely to drop and that silver will rally.
  • Silver bottomed in March 2015. The T-bond high also suggests that silver bottomed.
  • Timing bubble tops is difficult. Risk/reward analysis is more appropriate.

SUMMARY: 

 T bonds and the S&P look dangerous, while silver has been crushed during the past four years.  Which of those three asset classes is likely to perform better between now and Election Day 2016?  Which of those assets has no counter-party risk?  Two of those assets currently trade at or near all-time highs, while one is, relatively speaking, quite inexpensive!  Invest accordingly.

Read:  “By Almost Every Measure Stocks Are Overvalued

From Simon Black in Sovereign Man:

“Adam Smith in ‘Supermoney’ wrote a passage so wonderful and so relevant to our current situation that we may have become addicted to its re-use:”

“We are all at a wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air. We know, by the rules, that at some moment the Black Horsemen will come shattering through the great terrace doors, wreaking vengeance and scattering the survivors. Those who leave early are saved, but the ball is so splendid no-one wants to leave while there is still time, so that everyone keeps asking, “What time is it? What time is it?” But none of the clocks have any hands.”

“The clocks may not have hands, but the ticking goes on.

Bond markets are living on borrowed time. Bill Gross may have been a few years early, but he was fundamentally right to suggest that they are resting on a bed of nitroglycerine.”

 

Gary Christenson

The Deviant Investor

5 thoughts on “Silver Lows and Bubble Bonds

  1. Collapse of bond prices is associated with soaring interest rate. Very high interest rate is deadly enemy to gold and silver. Go back to year 1980-1981 to see collapsing silver prices (during the time of Paul Volcker). I would agree USD should rise sharply (despite many analysts predicting doom for USD).


  2. While I agree that the bond bubble seems ready to burst, are you telling me that when the money start running out of the bond market, it will run into… drum roll… silver?! LOL, LOL, LOL. Do you have even a remote idea of the different sizes of these two markets? (That was a rhetorical question. Of course you don’t.)

    If the money starts running out of the bond market, it will run either in the forex (which is the only market large enough to absorb the kind of money that sloshes around in the bond market) or, less likely, in the stock market. Or a combination thereof. In which cases the USD will soar so high that the all-time high of 120 will look like a mere blip on the chart and the S&P will switch from merely humongously overvalued (as it is now) to true bubble territory that will put the 2000 tech bubble to shame.


    • Thanks for your critical comments. That helps confirm that my article is on track and appropriate.

      And no, I am not telling you, with or without a drum roll, money will run out of the bond market and into silver. Read the article again and then refrain from criticizing that which you invented and I did not say. I did note the timing for bond highs and silver lows.

      As for the difference in size of the markets, are you suggesting that 10 or 20 $Billion is NOT the same as many $Trillion? Do you have even a remote idea of the different sizes of these two markets? That was a rhetorical question! Of course you did! LOL LOL.

      As I said, thanks for confirming that I’m on track.
      The Deviant Investor


  3. Another excellent article showing the view of all the rigged markets from high above. Interesting how the bond yields are now near negative interest rates. You can’t do any worse then negative interest rates and they have nowhere to go but up. When that happens bond prices will crash along with the stock markets & the derivatives markets will go through their deresolution.

    Thanks for your great articles!


    • Thanks for your comment. The problem with rigged markets is what happens when they can no longer be “rigged” or forced to perform as the financial elite demand. I suspect we are fairly close to finding out.
      The Deviant Investor


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