subject: Gold Today: Could It All End With Sovereign Debt Bond Markets Bubble? [print this page] I say that because the bond market is the foundation of our fiat or debt money system. If the markets for sovereign debt collapse, I think the ruling elite will have no more bubbles to blow. And I have to think the really smart elite are seeing the handwriting on the wall and that they are quietly accumulating gold and silver and other tangible assets while continuing to con average folks into buying the paper denominated asset they are moving out of. One example of this kind of con job has really stuck in my mind of late. When George Soros was reportedly buying a lot of gold last year, said he thought gold was in a bubble. But was he selling? No, he was not. And I think Bill Gross of Pimco may be playing the same game in the Long Bond markets: talking one way to get the masses to move in a way that would benefit him. At present Gross is talking about a bear market in bonds. That could help send bond prices down and yields higher as commodity and equity prices head higher. What a great opportunity then for Mr. Gross to start buying bonds once again just before the markets crash, sending yields plunging once again in tune with QE3.
As we get into 2011, I will again be carefully watching the 30-year bond to see if/when bond prices fall below those two key support lines. If the price falls below the steeper uptrend line, it may be a bond buying opportunity, especially if you think as I do that we still have a very significant credit implosion ahead of us. If the bond yields rise to the level where bond prices plunge down to the less steep bull market support line for the 30-year bond, it could be an even greater buying opportunity, or not.
If rates plunge below that long term uptrend line, it would likely signal the start of a long term bear market in the grand daddy of all sovereign debt markets, namely the U.S. dollar-denominated Treasury. Whether that would signal a major inflationary problem or a deflationary depression would in my view depend on whether real interest rates were positive or negative. If significantly positive, it would likely result in Ian Gordons scenario of a deflationary depression and a stronger U.S. dollar. On the other hand, if rates are rising but negative, they could be indicating rising levels of inflation as the Fed would continue to pump more money into the system to keep the real rates below the inflation rate in order to keep the bubble expanding. Even so, there would/will come a time when even that wont work and we will get the granddaddy of all deflationary depressions.
