One more rally for bonds this summer as equities take a vertical plunge?

Posted on 17 June 2013 with no comments from readers

The recent volatility in the Japanese stock market and red lights showing an economic slowdown in China are the harbinger of a much bigger crash coming soon in global equity markets and a last rally in the bond markets.

That’s the opinion of Charles Nenner Research, whose long-term business cycle analysis is widely followed by hedge funds and sovereign wealth funds alike (click here).

Huge bear market

Nenner actually has stocks losing 60 per cent of their value over the next seven years. Conversely gold is at or close to a bottom now in the high $1,300s. Silver is the same story. They will be going up soon.

For bonds a 30 year up cycle is almost done, says Nenner and the price action for the next 30 years will be downwards. That is to say interest rates will be heading up and not down.

The Nenner track record for calling the turn in markets is very good. They told followers to sell in 2008 before the crash. Now its analysts are saying the same thing. Again few are listening and this is thought the work of crackpots.

Of course this psychology is also very cyclical. How quickly people forget the pain of the losses in the past crash and assume an all-time high in stocks and company profits can be maintained, against all the only too obvious historical evidence.

What will it take to cause a crash? Some ill-chosen words from the Fed chairman on Wednesday in his statement? Not very likely really.

Asian financial crisis

A financial implosion in Asia focused on Japan and China seems a more probable unstoppable event. Rising political tension in the Middle East focused on the civil war in Syria could spike oil prices.

The bigger picture is surely of a massive debt mountain reaching the tipping point when borrowing costs become too high to be serviced as interest rates go up. Such leverage in reverse is highly toxic for all asset classes, except ultimately for gold and silver.

So if you want to protect your downside precious metals are still the place to hide, even though in their final death throes the global central banks have done their best to throw a false signal on this too.