As I have been saying to my trading buddy-Mike- even way before this chart breaks out, that was bullish as fuck! But not the kind of bullish you want it unless you are short US Gov Bonds. That is a chart that reflects the Trust in the US government debt for now, and may be eventually a loss of trust in the US dollar as whole. As you may know the dollar is not backed by Gold anymore, it has been backed for a while by the full faith and credit of the US Gov, If I may add also the full force and might of the US military. And that might be hitting a snag right now as the operation Epic Fury is going no where and freezing the entire Global economy. That for sure gives a pause for everyone watching, to wonder …WTF 

If there’s not faith or trust in the US Gov. If the US military is having a hard time, what do we actually believe in. That might be the question all around the world while the are dumping US debt. And if you think about it from a logical point of view, why do we have to finance the US debt that one day can bully, sanction, attack or bomb the shit out of US one day. 

The torrid rise in yield is not a surprise to any close watcher to the market. And as I see it it’s closely related to multiple factors. Inflation, Growth, Debt and deficit, and Trust 

I Believe there’s a shit ton of inflation in the system, and for any one with 2 brain cells would realize that we might be experiencing the inflation effects from the money printing that happened in 2011 to fight off the repercussion of the financial crisis, some others will say it’s only because of COVID and the supply chain breakdown that followed, and no Fed official will ever come out and say Yea, we fucked up we distorted prices and interfered with markets. We created money out of thin air and called QE so we can give it to people to stay home and not work, the other option would have been a complete banking failure.

If you or I had a printing press and started printing money, we would go to jail 

Growth doesn’t cause inflation, as a matter of economic fact growth will keep the lid on inflation. However, some bullisht economists - as the ones you see on Fox and CNBC  -will come out and say bond Yields are rising because the growth is so strong that’s why investors are selling bonds pushing yields higher and investing in the economy. Bullshit! 

The real economy as you can see from the charts of Retail, Hotels Airlines, homebuilders, and anything that consumer sensitive had been obliterated for a while 

All of these charts don’t spell a strong economy. It says that we are in a freaking recession I didn’t add any cruise lines or airlines or any consumer sensitive areas.

MCD CEO came out yesterday and said we are in a very challenging inflationary environment that will last for a while. Airlines are taking capacity out of their system because there’s no demand. That’s not a booming economy. 

Imagine you are a household that have a gross income of 500k however, you spend 750k every year. Yea! You put the rest on credit card, and when the bill comes due you roll it over into another 0% introductory rate credit card. But I have some bad news for you, there’s no more 0% rate grace periods, the rates have sky rocketed because you are a shitty borrower and no lender trusts you. That’s how I would explain the fiscal situation for someone who is 10 years old 

The trust in the US as a leader in the world is tanking, that has been the case for a while but since Trump came to the office he took it to another level. Look at what we have done to Canda, your closest ally, we pissed them off big time why would any one on Gods green earth would buy your debt anymore, so they can empower your Gov then you bully or insult them the next day? Now after the Iran war started and all the Arab and Guld countries have realized that the US is unable to protect them, which was the main reason that these monarchies have housed and accommodated US military bases on their soil for years, they wanted protection and they never found it, so that puts the petrodollar on the line which was the main reason everyone is using the US dollar

The question now where would Yields Go?

As a self-proclaimed Gold Bug, I have a bias! Yields will go higher, as the 40 year Bull market in bonds that started in the 1980s -bond prices going higher- Yield prices going lower- has ended in 2020 where yields hit almost 0% and bond prices peaked  

I remember listening to a podcast where they were talking about an Austrian GOV 100-year bond that they were able to float at 0.85% -read that again- 

That Austrian bond right now is trading 30 cents on the dollar, that means if you bought his bond in 2020 for a dollar you will have to wait till 2120 in order to get your dollar back. Meanwhile if you want to sell it now you only get 30cents back. But at least for now you can collect your 0.85 cents while you wait! 

The bottom line, while Bond prices are a headwind for Gold, at some level the deterioration in the Bond market will be bullish for Gold, and that will come at the expense of the Dollar 

The theory here is that once the bond market deteriorates further, and bonds go higher it will create an unsustainable situation for the Bond market, the economy, and everything that is rate sensitive. Think of credit cards, Mortgages, consumer and personal and business loans. Pretty much everything. And anyone that wants to borrow or do business or buy a car or a house. Will simply have to pay higher interest rates which will inevitably become uneconomic as the rate of return on these loans will become unworthy of taking the risk to buy the house or buy the car or do the business. This has been the case for the past 25 years. People who bought a boat load of properties while the interest rate was cheap were able to generate returns that covers the cost of the loan and then some. That created a generation of land lords that drove on that gravy train. I have a news for you! I think that is over, all these Airbnb bros will have to unload these properties on the market causing a massive price declines in the property prices. What is that going to do to the wealth effect? What is that gonna do to the economy? The owners eventually will send the keys to the lenders just like 2008 instead of sending their mortgage payments.

Now lets come to the Fed and the Gov response which will ultimately be another bail out and another massive QE program, so far we might have more QE programs since 2008 more than Rocky movies.

So when the Gov response arrive and start firing the printing press, that might save the Bond market by pushing the nominal bond prices higher, that might save the nominal housing prices and push it higher, but that will be at the expense of the almighty USD  and then only then that will trigger a collapse in the dollar value and will push the bind yields even higher and to the surprise of everyone you will have higher yields -lower bond prices- and weaker dollar! That will be counter intuitive to the conventional wisdom higher yields stronger dollar, Not this time though.

The main beneficiary from that scenario will be Gold and Commodities as they are all denominated in dollars. And we have seen hints of that right now, the relentless buying of Gold from central banks all around the globe. Do they know something that we don’t?