Skip to Content


Mother of all bubbles is about to burst

April 23, 2012, 12:02 pm

The mother of all financial bubbles is about to burst.

It will be worse than the tech bubble in 2001. Worse than the housing bubble of 2006.

In fact, what we’re seeing today hasn’t happened since before the Civil War.

And it could have dire consequences for your portfolio when it pops.

I’m talking about the massive bubble brewing in the bond market.

Perhaps you saw the recent headlines announcing that long-term government bonds outperformed stocks over the last 30-year period.

Bonds eked out a slight edge, delivering 11.5% a year on average vs. 10.8% in the S&P 500 over the last 30 years.

In 2011, Treasuries were the second-best performer for the year (behind only gold), delivering 9.6% in 2011 vs. the S&P 500’s flat performance.

This is NOT my way of telling you it’s time to ditch the stock market for bonds…quite the contrary.

This is me waving a HUGE red flag to warn you that the mother of all bubbles is about to burst.

The most expensive bond market of our lifetime.

Chart 1
The tech-heavy NASDAQ peaked at 5,048 in March 2000 before the bubble burst.

That’s how one money manager describes today’s bond market.

Fears about the global economy have created a global flight to safety that has inflated the bond market to unsustainable heights.

But as we have learned—painfully—time and again, when an asset is inflated, it pops, causing tremendous losses for those who didn’t get out in time.

When the tech bubble burst, investors lost $5 trillion. And ten years later, the NASDAQ is still a mere 47% of what it was at the height of the tech bubble.

Americans lost $7.38 trillion in the housing bubble.

Chart 2

And now we are seeing the same pre-burst pattern in bonds.

Chart 3

It’s mathematically impossible for this to continue.

“The rally in bonds is a once in a millennium event, but it’s absolutely mathematically impossible for bonds to get any kind of returns like this going forward whereas stock returns can repeat themselves, and are likely to outperform,” said Jeremy Siegel, finance professor at the University of Pennsylvania’s Wharton School.

Bonds reached these heights for two reasons: because they were seen as a safe haven from extreme volatility and because investors simply lacked a better opportunity. The eurozone saga, a slowdown in China and a free fall in emerging markets meant investors were simply out of better options.

So in exchange for a safe haven, investors were willing to park their money in bonds that paid them nothing or next to nothing.

Give the U.S. government your money for the next 10 years by buying a 10-year Treasury, and in return, you’ll get a measly 1.8%… after TEN YEARS! You’ve lost money at that rate. On top of that, you risk missing out on serious profits. Investors sitting in bonds were completely shut out of the record gains we saw in the stock markets in the first quarter.

This simply can’t continue.

As governments, investors, pension funds and so on exit bonds looking for better returns, this bubble will collapse, destroying wealth on a massive scale.

If you have been profiting from the bond run-up, congratulations! Now it’s time to lock in those gains before it’s too late. The chorus of voices predicting the end of the bull market in bonds is growing louder, and analysts are starting to recognize that there is a bubble.

You must get out before this tide shifts and the big money players on Wall Street and institutional investors head for the exits.

If you are looking for income, there are much better opportunities today in top-notch stocks that also pay bond-beating dividends. On top of capital gains, our top dividend-paying GameChangers also deliver 2.30%, 2.90%, even 3.50% yields.Check them out here.

This bond exodus will create a tsunami of cash that investors will need to redeploy somewhere, and given what’s happening in the rest of the world, U.S. stocks will be the investment of choice.

Get my Top 5 stocks to buy now, along with access to all of my stock recommendations when you join me risk-free today.

Signed- Hilary Kramer

Be the first to leave a comment.

* Required. Email address will not be shared.

By submitting a comment you grant Kramer Capital Research a perpetual license to reproduce your words and name/web site in attribution. Inappropriate and irrelevant comments will be removed at an admin’s discretion. Your email is used for verification purposes only, it will never be shared. Please note that comments will be not be responded to directly on this website, but may be addressed through future articles and other content.