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When the gold price rises past a certain
point, especially new highs, the bond markets start to fear. It’s not
just because there is inflation out there, because they can price in
inflation. Even tho the bean counters (bond –
guys) who never create anything but just base loans on others assets, can
price in inflation, if gold rises too fast they end up with a real pickle.
Gold Discount
So before we continue, the thesis is
that when gold prices rise worldwide like now, across the all the nations,
there is no bond haven. At this point gold rising to new highs effectively
means that the world bonds of all types (and this means all debts too even
car loans and so on) are being discounted in real time. That scares
the HELL out of bond traders and funds. And there is no escape either. They
must be scared right now. Gold is likely creating a new higher low right now.
People talk about the bond and debt swap markets and the chaos that is having
on the sovereign bond markets. They will have a field day with this.
So, what do you do when you have
trillions of bonds out there and you are a bond trader or fund, and you know
this fact. You know there is no yield out there
(another reason to discount bonds clearly) to bail you out. You have to sit
on a pile of money and watch it being discounted in real time as or when gold
makes new highs. Only the gold market can discount bonds in real time. There
has to be several specific circumstances, but if those are met, which they
are now, gold effectively is an instant world debt discount market. I am not
merely talking about inflation here. I am talking several conditions that
have to be simultaneously met.
This is mainly because the entire world
is facing currency devaluation forces, and zero interest rates, and because
all of them consider gold another currency and the best Central Bank
reserves. As a bond fund, your only hope is to stay ahead of the information
curve, which with the way networks spread information, and gold saying that
bonds are worth right now perhaps a discount of a minimum of 25 pct. haircut
across the board. That is as of now. How do I know that?
The information curve
The main issue here is that these funds
have profited when there were interest rates around 6 pct. historically. They
also profited from an information curve that they were ahead of before the
new modern networks like the internet.
So when the bean counters had an
information lead over the rest of us, and there were some positive interest
rates, they could dominate the financial markets.
But all those advantages are gone now,
today. So now big piles of money are chasing virtually no yield. Which means they must be discounted.
Gold highs
I’ll just say this. I made a
prediction that in a year or so, gold will try and beat $2500 USD which we
will look at from a math perspective as to how this will effectively discount
in real time the bond valuations in everything worldwide.
Again, remember there is no haven with
yield out there. The countries that have any real yield left are trying to
lower their currency values to stop the rise and flight into their
currencies, which makes their exports too expensive… just think about
that. Exports mean profits which mean yield but let’s not digress.
When gold rises from an old high of
$1800 like recently, to say $2200 what is the calculation in a world debt
discount?
IF this rise is across all currencies,
then, assuming the USD is used for the example, here is what we get.
It’s really quite basic:
2200 divided by 1800 = 1.22
That is a 22 percent rise in
gold’s price.
Depending on how you look at this, this
means that bonds valuated in dollars for example have fallen in value by the
same amount since the yields out there are effectively below zero, which
means there is no way to cover the loss.
This means that every bond fund out
there is worth now in this example about 20 percent less than it was before
that new high. Of course those numbers fluctuate, but in the case of a large
bond fund like Pimco with about $2 trillion to have
to place in something with yield, it means for example that Pimco’s bonds are really worth in real time, like
it or not, 20 pct. less. IE a Haircut. Gold does haircuts in real time. Not
like in the sort of fake world where governments use the public treasuries
(all now going bankrupt) to like act like a delaying action.
The fact of the matter is, in this
example, a fund with a trillion or two of assets is effectively, in real
time, devalued by any new gold highs or higher lows (higher ranges). And as I
stated, the only thing the bond funds can do is try to push the governments
to bail this mess out so they don’t take the haircuts. But…
‘We don’t want your money.
Thanks.’
The fact that the world governments have
pushed out $40 trillion of money (they say it’s ten but they are lying)
to bail out every market on the planet since 2007 and gold is still rising
kind of proves my point. Doesn’t it? The fact is…
We will see new gold highs probably this
year, and being conservative, picking a new range of $2000 to $2500 for
starters, will effectively scare the hell out of every bond fund on the
planet. And every lender on the planet. And get this. At some point, funds
won’t take your money. Then where will we go? Banks are already
declining taking money, because they have no way to get yield. That is a
scary development if you think of what the implications of that are.
Eventually big bond funds will be seen as liabilities. Not the other way
around (for one thing they are less nimble).
There is a lot more to say about this,
and we cover gold, the USD the CRB and other markets and have made many major
predictions ahead of time, I said ahead of time, in our 8 years of publication.
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