The Long Bond has Finally Broken

The really big news this week in my view was Michael Oliver’s recognition that the long bond has finally broken when he wrote that “TLT is broken.” There on the next page, I passed along Michael’s March 23 missive on this very important topic.

Why do I consider this so important? There are two reasons. First, TLT as you know is the ETF for the long-dated U.S. Treasury. It has broken down on Michael’s momentum chart, which is almost a 100% guarantee that interest rates are heading higher no matter what the Fed does! That of course is what Alasdair Macleod has been saying for months. With inflation approaching double digits, a 10-year Treasury at 2.49% is ridiculous, as natural laws of economics demand it be much higher. Rates are rising very slowly as the Fed is lifting its foot off the gas pedal very slowly, trying to orchestrate a smooth landing, which is highly unlikely. I say that because historically whenever the Fed has “tightened” into a declining economy, when commodity prices were surging, recessions followed. And one of the most important sectors of the U.S. economy, the housing sector, is starting to look weak as mortgage rates are starting to rise. While recent rates were in the mid 2% range they are now approaching 4%, which makes a world of difference when housing prices were already out of reach of new families.

As Michael has been saying on my radio show for some time, there have been two safe havens where money flows when equities tank. Those two are U.S. Treasuries and gold. But so far this year, only gold has remained as a key safe haven. I don’t think much of the money seeking safety has transferred to gold or gold would be several times higher in price than it is now. No doubt a lot of money is flowing into commodities in general and an awful lot is staying in the stock market, which is still very overvalued, especially if rates continue to rise, as Michael’s work suggests.

These are very challenging times for investors. As I said in my Vancouver presentation on March 10, inflation could rise dramatically higher with surging supply chain issues resulting from Russia’s invasion of Ukraine, pushing interest rates still higher and requiring still more tightening by the Fed, which is likely to trigger the U.S. economy not only into a recession but something more akin to a depression. Of course, as a result of massive debt as I pointed out in my presentation, the U.S. economy simply can’t withstand higher rates because the capital markets have been absolutely destroyed by the Federal Reserve Bank. But one thing that has remained very strong is huge amounts of capital flowing into the private placements junior exploration stocks. Why? Because the markets understand that gold and silver and, to a lesser extent, copper is money! A restoration of our economy will require a return to some connection with real money. I have never been more bullish on the junior gold and silver exploration sector than I am now.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.