Panic & Recession Are Coming So Buy U.S. Bonds

Why buying U.S. Bonds might actually be the best way to protect your money from the impending market crash.

An economic crash is coming. On March 30, Treasury yield curve spreads were 3 basis points on the ten-year minus two-year, and 0 basis points on the thirty-year minus five-year.

What does that mean?

Well, right on cue, Wall Street PR firms started issuing the “it doesn’t matter this time” white papers. They were telling the public not to worry, everything will be fine.

Don’t believe them, it does matter, and it’s time to start preparing for the next crash.

Trillions of dollars have literally disappeared from the global economy.

High-yield funds have experienced nearly three full months of outflows, which is bad. Meanwhile, new high yield issuance is at a pace of about one-third that of 2021 — also bad. The pace of M&A has slowed, which is bad when it precedes a recession, and at the same time that banks are getting hung with underwritten debt, which they are.

By the way, banks are preparing for the worse; JP Morgan just shored up an additional $900 million, bringing their total loss reserve to over $6 billion. In other words, they are anticipating needing $6 billion to burn through should a recession occur.

In a recent interview with Larry Summers, the former Treasury Secretary told Bloomberg news that a crash was imminent.

So what happens now?

This chart shows an inverted yield curve, which means that there is an unusual drop in yields on longer-term debt below that of yields on short-term debt of the same credit quality.

Also called a negative yield curve, the inverted curve has proven in the past to be a reliable indicator of a recession to come.

While many interested firms on Wall Street are saying that it doesn’t matter, that message has been countered by Jeffery Gundlach, a guy that dropped out of the Ph.D. program in math at Yale because it wasn’t challenging enough, and who has literally been called “The King Of Bonds.”

Jeff disagrees and says that Wall Street PR is lying.

But no, Wall Street Public Relations insist, “don’t believe this guy, he’s just paranoid.”

Jeff is not paranoid, and in a few years, there will probably be a Netflix movie about how right he was.

Speaking of…

Shares of attractive technology firms like Zoom and Netflix, which were sent sky-high by the pandemic, increased even more as the return on bonds all but vanished amid near-zero interest rates.

Now, these types of stocks have plummeted in response to Europe and The Fed having increased long-term interest rates. This indicates that investor confidence in the market is shaky. It also indicates that many investors now prefer the stability of bonds over the potentially lucrative returns of stocks.

In other words, as soon as interest rates on bonds became favorable, investors quickly retreated from stocks and went to bonds.

Remember, the market is driven by either confidence or fear, nothing more. The economy today is in deeply uncharted territories that defy all traditional modes of measurement and logic, and people are afraid of the unknown.

Panic is coming.

Perhaps it seems that the only safe way to protect your money is to get out of the markets entirely and put it into either undeveloped property, gold, or just good old-fashioned cash.

However, the increase in interest rates, indeed, makes purchasing U.S. Treasury Bonds an attractive option for protecting your financial future.

It’s true that the political agendas of both the Democrats and the Republicans in America are guaranteed to exasperate an already treacherous economic situation and crash the financial system yet again. The Democrats have proposed a new minimum tax of 20% upon households worth more than $100 million because they say that the tax will reduce federal budget deficits by a whopping $1 trillion over just a single decade. This sounds peachy to many voters, but the problem with this thinking is that by taxing billionaire wealth, we actually are just squeezing money supply further.

Considering that trillions have vanished from the economy, this is not a good idea right now.

On the other side of the aisle is The GOP who is actively trying to derail the federal government and basically any form of financial regulation whatsoever. Senator Hawley, for example, has vowed that he will use his senatorial prerogative to hold up “every single civilian nominee.” This makes getting vital appointments in The Fed difficult during a time when they are desperately needed.

The other issue with the GOP is that they would love to weaponize the USD and hold it over the head of anyone who dares challenge America. This is really bad because it would make many governments around the world skittish, thus causing them to seek alternatives for a reserve currency.

The result would be lower demand for the USD.

There is a silver lining.

Amidst the chaos, The Fed is doing one of the only things it can do — raise interest rates to slow money supply coming from private banks in an effort to reduce inflation.

While it’s likely too late to avoid a recession, the result of rate hikes will be a better bond market over the long term, and higher-yielding bonds that are available in the near term.

For most people, purchasing bonds with maturities of one year to five years makes the most sense in the current economic climate. The greatest protection is probably in the 2-year bonds because even if The Fed raises rates again (which they probably will) it’s not asking a lot to wait for the bonds to come to maturity.

On the other hand, if The Fed is pressured to lower rates again to compete with restricting money supply, then holders of the higher yield bonds will be able to sell them on the open market.

The weather forecast for the economy is ominous, so start preparing for the storm that is coming. Bonds are a good option.