The most significant market development so far in 2022 has not been the epic stock market fail, the explosive growth of the Omicron virus, or the runaway prices at the supermarket, although that is quite a list.
Far from it.
It has been the utter collapse in the bond market, which has seen the (TLT) plunge a gut-punching $15 in only six weeks. Since the beginning of this year, the yields on ten-year US Treasury bonds have rocketed, from 1.34% to 1.82%.
I love it when my short, medium and long-term calls play out according to script. I absolutely hate it when they happen so fast that I and my readers are unable to get in at decent prices.
That is what has happened with my short call for the (TLT), which has been performing a near-perfect swan dive since November. The move has been enough to already boost me into positive numbers for 2022, some 2.5%.
The concierge members who accumulated many bond put LEAPS have made much more.
Lucky borrowers who demanded rate locks in real estate financings in October are now thanking their lucky stars. We may be saying goodbye to the 2% handle on 5/1 ARMS and the 30-year fixed for the rest of our lives.
The technical damage has been near-fatal. The writing is on the wall. A 2.00% yield for the ten-year is now easily on the menu for 2022, if not 2.5% or 3.0%.
This is crucially important for financial markets, as interest rates are the wellspring from which all other market trends arise.
Wiser thinkers are peeved that the promised bleeding of federal tax revenues is causing the annual budget deficit to balloon from a low of a $450 billion annual rate in 2016 to $3 trillion last year and another $3 trillion in 2022.
It will all end in tears for bond and US dollar holders.
With a massive infrastructure budget just ahead of us, that number could soar by the end of the year.
Weimar Republic, eat your heart out! (Millennials please Google this).
It is all a bond short seller’s dream come true.
As rates rise, so does the debt service costs of the world’s largest borrower, the US government. The burden will soar in a hockey stick-like manner, currently at 5% of the total budget.
What is of far greater concern is what the tax bill does to the National Debt, taking it from $30 trillion to $33 trillion over the next year, a staggering rise. Even Tojo and Hitler couldn’t get the US to buy that much during WWII.
Better teach your kids to drive for UBER early, as they are the ones who are going to have to pay off this gargantuan debt. That is if (UBER) is still around.
So what the heck are you supposed to do now? Keep selling those bond rallies, even the little ones. It will be the closest thing to a rich uncle you will ever have, if you don’t already have one, writing you big checks every month.
Make your year now because the longer you put it off, the harder it will be to earn.
