The article’s main point is that those factors that you mentioned ( e.g. government sucking the economy ) are PRICED IN to the current bond market prices. Hence, it would be wise for the investor to follow what bonds are signalling.
US Treasuries are essentially a proxy for risk aversion in the financial markets.
Of course, from a fundamental standpoint, the US’s debt situation is just as bad if not worse than the European countries currently coming under fire (the only difference being we have a printing press in the US).
However, until the Sovereign Debt Crisis comes to US shores, US Treasuries will be seen as a safe haven, rallying whenever investors are concerned about the financial system.
To whit, in the last few weeks, Treasuries have broken out of a multi-year trading range. Even more importantly, they have bounced off of the former top of this trading range, indicating that former resistance is now acting as support.
In plain terms, Treasuries have gone on “red alert” sending a clear signal to the rest of the investment world that all is not well in the financial system.
The last time Treasuries were this elevated was in the depth of the 2008-2009 Collapse.
Which is why it’s critical to note that Treasuries have completely refused to believe in the recent stock market rally of the last few days. Indeed, while stocks have erupted higher rallying 5% from the 2AM low on Tuesday July 6 to 1,060 today, long-term Treasuries have barely dipped let alone begin anything resembling a correction (a sign that danger has passed).
The world bond market is twice that of the world stock market. And bond investors are a typically more sophisticated that stock investors. So to see Treasuries failing to confirm the stock market rally by remaining elevated (not falling) is a major warning sign to the bulls.
Remember, the last time Treasuries were at this level was between November 2008 and April 2009: the absolute nadir of the First Round of the Financial Crisis.
Which begs the question… do bonds know something stocks don’t?
Let’s be blunt here. Now is the time to be preparing for another potential 2008 event in stocks. The warning signs are all there. Entire banking systems are beginning to collapse (Greece, Spain, etc). We’ve already had one Flash Crash as well as numerous stock short circuits in which trading is halted because the stocks in question suddenly trade at $0 or $100,000.
Could stocks rally some more now? Yes. But that’s not the point. The point is getting ready for what will happen in the coming weeks and months. Stocks could be wiped out, in eight weeks, what took three or even six months to attain (all of the gains going back to February if not November are now gone).
The questions every investor should be asking him or herself are today:
1.Have central bankers’ policies really solved the issues that took down the financial system in 2008?
2.Do I have faith that Ben Bernanke and his ilk are in control and can manage the Sovereign Debt Crisis if it comes to the US?
3.Do I truly believe that now is a great time to invest in stocks based on what I will likely make via capital gains and dividends?
This set of questions should be followed up with a second round of more intense, personal questions:
1.What would happen to me and my portfolio if the market continued its downtrend of the last eight weeks (meaning the S&P 500 at 922 or even lower by August/ September)?
2.What would happen to me and my portfolio is we had another Autumn 2008 type event (a 20-30% collapse)?
3.What would I do if the stock market had to be closed for several months (this happened during the Great Crash/ Depression)?
[1.Have central bankers’ policies really solved the issues that took down the financial system in 2008?]
No, because the problem is a moral one. When a significant portion of players in the market place believe it’s perfectly acceptable to use dishonest scales, shyte happens.
Do what thou wilt is NOT the whole of the Law.
Although I really don't see that my 401k and I have any alternative to 'duck & cover'.