Adens: Bond Bets and Gold Gains

10/22/2015 9:00 am EST


Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Nearly 90% of the developed world is dealing with interest rates at zero. And almost half of all the bonds in the world are now paying less than 1%, asserts Mary Anne and Pamela Aden, editors of The Aden Forecast.

The end result is that there’s no incentive to save money. On the contrary, these low interest rates entice people and corporations to borrow, in many cases much more than they should.

So even though too much bad debt triggered the 2008 financial crisis, this mountain of debt has not been reduced. There has been no deleveraging.

In fact, the opposite has occurred. Total world debt is now more than $200 trillion. Amazingly, that’s 40% greater than it was before the financial crisis hit.

In other words, the debt keeps growing and growing, and nothing is being done about it, which only makes matters worse. This has put the global economy on thin ice, making the environment more vulnerable to a shock.

All of this debt is also very deflationary. The financial system has become addicted to easy money. The markets are abnormal because of all the central bank intervention. Central banks have basically taken over the free markets.

Meanwhile, economic growth is slowing worldwide. The IMF says global growth this year will be the weakest since 2009. Several countries are already in recession and others are teetering on the brink.

Deflation pressures are growing, the risk of a global recession has increased, China’s economy is still slowing, inflation remains non-existent, and investors are nervous.

This is not a good environment for stocks. And playing it safe is the best route to take for now.

US government bonds have been strong and prices are set to rise further. That is, interest rates are headed lower.

We know some of you find this hard to believe. After all, with interest rates near zero, how far down could rates go? But remember, the interest rates you hear about in the news are usually short-term rates.

Long-term interest rates are another story. The 30-year yield, for example, is currently at 2.90% and the major trend is clearly down. In other words, long-term interest rates have plenty of room to fall further.

That’s why we continue to recommend buying and holding long-term US government bonds and/or our favorite bond ETFs, which are ProShares Ultra 20+Year Treasury (UBT), iShares 20+ Year Treasury Bond (TLT), and iShares Lehman 10-20 Year Treasury Bond (TLH).

Gold is also a safe haven. It’s the currency of last resort. We believe gold shares are on the super bargain tables. Selective buying is good now, for buy and hold investors.

Gold shares are in a super oversold condition and buying a little now would be fine. We recommend buying more Central Fund of Canada (CEF) and Market Vectors Gold Miners (GDX). But don’t load up on gold shares until a clear confirmation that a new bull market has begun.

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