The Central Banks’ strategy of buying sovereign debt in massive quantities until the yield offered next to nothing—and in many cases less than that--served to crowd out private investors and pushed them towards riskier bonds in a desperate search for an after tax, real return on their fixed income investments.
" The stench of economic malaise was suffocating as the Dow Jones Industrial Average (DJIA) rounded off its fourth straight week of losses, and the S&P 500 touched below 700 for the first time in 13 years.
Goldman Sachs cautioned the S&P could fall to 400, while CNBC’s Jim Cramer was busily calculating the stock valuations of the DJIA components based on balance sheet cash levels.
At the same time, every asset that was priced off of those ”risk free” sovereign bond yields, which provided countries the privilege that could only expected in the twilight zone, i.e., to make money by borrowing money, will head into a nosedive as well. And one can see it clearly when viewing in plain sight the beginning of a bear market in bonds and its pernicious effect on insolvent companies and countries alike.
Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called,"The Mid-week Reality Check", is Host of The Pentonomics Program and Author of the book "The Coming Bond Market Collapse" On March 9, 2009, The Wall Street Journal’s Money and Investing section posed this ominous question: "How low can stocks go?
That is, as already stated, if long-term rates don't rise--but they already are. bond mutual funds like never before in the wake of the Great Recession.