We have entered a period of complete financial madness. There is now nearly $17 trillion worth of bonds with negative yields around the world. That’s almost $17 trillion in bonds where the lender is basically paying the borrower for the privilege.
Some investors in bonds have been making a killing. As reported by MarketWatch:
Buying into the near-$17 trillion heap of global bonds with negative yields might sound like a losing proposition. But for some investors – those who predicted correctly that bond prices this year would climb amid worries about sluggish global growth – negative yields actually have been a cash cow.
“There is a big misunderstanding about negative-yielding debt,” said James Bianco, founder of Bianco Research, in an interview with MarketWatch. “Owners of these bonds have been seeing huge price increases.”
Noted financial blogger Mish Shedlock bluntly assessed the situation this way:
Clearly, no one intends to hold a 30-year negative-yield bond to maturity. Losses will be both steep and sudden should yields rise.
At some point the bond market is guaranteed to blow up. Timing the point is difficult. Traders have been betting against Japan for two decades, incorrectly.
He’s right. It’s a disaster waiting to happen. But these things can drag on for decades.
And it’s not just government bonds that are negative anymore. Take a look at negative-yielding corporate bonds, which have doubled to $1.2 trillion over the past few weeks.
It’s madness. And President Trump is begging for the Fed to return our rates to zero and restart QE (quantitative easing).
The Macro Economy’s Effect on Crypto Markets
I believe public fear about our ongoing debt-fueled financial disaster is reflected in the crypto market today.
Bitcoin is the “flight to safety” asset of the crypto world, so it continues to outperform altcoins by a broad margin. Most people are less interested in speculating on altcoins today than they were two years ago. Altcoins are (rightfully) seen as a riskier asset, and most investors see bitcoin as extremely risky already.
Of course, this could change at any time. Altcoins seem due for a bull market. But I continue to believe it will be a very selective bull market.
For an altcoin to outperform in this market, it needs to be special. I think it will take real-world traction, disruptive technology and an amazing community. I’m on the lookout for such projects but haven’t found anything new that fits the bill just yet.
Don’t get me wrong, I haven’t sold any of my altcoin positions. I continue to believe they are a critical part of any crypto portfolio. Eventually some altcoin will come along and truly challenge bitcoin. And investors won’t want to miss it when it does.
I am simply trying to set realistic expectations. The altcoin market is still struggling, which is why I’ve been so insistent on bitcoin forming the core of all crypto portfolios. As we approach next May’s bitcoin halving, this will be especially important.
It’s possible that as we approach the bitcoin halving, bitcoin will break out to new highs and surpass $20,000. At that point, I would expect select altcoins to do extremely well. But until bitcoin does break out, I think it’s likely that the altcoin market will continue to struggle.
Good investing,
Adam