Loading ...I am amazed how many individuals are ignorant to the imminent danger that is correctly present in our economy. Let me explain it in the simplest way I possibly can. If you knew that a number had to be between 0 and 10, and that the current number was 0.25, how much would you bet that EVENTUALY the number would be higher than the 0.25? Now let’s make it more realistic. What if 10 was not the limit, what if there was no upper limit but zero was still the lowest limit? This is the situation we currently have in our interest rate and treasury markets.
Now, let me explain how this affects the bond market. When rates go up, the prices of bonds that were written before the rates increased go down. For example, a bond that was written when rates was 0.25 will get its valued reduced dramatically when rates go up to 1% because it got devalued by 4 fold. 10000 dollar worth of bond will now be worth 2500 dollars so the yield on the bond adjusts to the new rate of 1%. The same thing happens to preferred shares (most owned by corporate investors) because their value is based on a fixed return on which they were originally written at.
This is why you are hearing a lot of folks claiming that the US currency is now the old new carry trade. Everyone is borrowing dollars and investing in foreign markets. The way I see it, the government is stuck, frozen, castrated, and impotent to move rates any time soon. Doing so would certainly create another financial collapse. This means that as rates remain low for DECADES to come, inflation will no doubt be the cancer that kills the US middle class. At least this makes buying investments such as Gold a no brainer.
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