Yesterday’s piece generated a lot of interest, so we’re going to develop this theme some more.
The key item of note is that while US stocks are holding up, the Fed’s hawkishness has already blown up much of the global financial system. In particular, Emerging Market Stocks have already entered full-blown bear markets.
That’s the GOOD news.
The bad news is that the global debt bubble is in the process of bursting.
Quietly, and with few noticing it, sovereign bond yields have broken out of their long-term downtrends.
Here’s Germany’s 10-Year Government Bond yield:
Here’s the US 10-year Treasury yield:
Even Japan’s 10-Year Government Bond, which is actively managed by the Bank of Japan, has begun to breakout.
This is a massive deal… because it is BOND markets, NOT stocks that determine true systemic risk.
When a stock market breaks down, investors lose money.
When the bond market breaks down… entire countries go broke.
We are already seeing this happen on the periphery of the bond market with countries like Argentina and Turkey… but eventually this mess will spread to developed nations.