Scary and Unthinkable: Negative Yields are Coming
The US 10 Year and really, yields around the world, have plummeted to levels no one thought was possible. However, the unthinkable has become thinkable. I believe the US 10 year is likely only a week or so from 0.500 and if the Fed cuts rates again this month (as is likely), we could see 0 by the end of the month.
The real question though is will the 10 Year stop at around -0.150 or will it continue to fall? Only time will tell, but the near-term target is 0.000. In reality, it is very possible we can overshoot the lower trend-line to a whopping -1.000 or lower if the global economy shows no signs of any sort of stabilization and the virus continues to drag on and worsen.
As we move into 2021, yields will likely stabilize and rise, however, this will not be a good thing. Contrary to other recessions and down-turns where the dollar actually rose, in this impending recession, the dollar (DXY) will fall (tank), Gold will go parabolic, and more worrisome, other commodities could eventually spike given the fall of the dollar. That means we could see a surge in inflation eventually, as fiat currencies lose their value as a result of negative rates.
We are certainly entering unprecedented territory and investors must hedge against this unprecedented time by investing in Gold. At this present time, the only equities to seek out are high quality dividend stocks with a history of multi-decade dividend hikes. My favourite in this environment are utility stocks, such as Fortis, which has incredibly high stability and a whopping 46+ year dividend hike increase.
This is not the time to be dip-searching because equities have still a long way to fall and still trade at 17-18x forward P/E representing still at-least a 10-15% overvalued market. At some point, the SPX will test the 2600s and we all better hope that level holds or we will see panic like we never thought would be possible again.
Under no circumstance can equities have a sustained rally (that doesn't fade) until the 10 year hits at-least the +1.000-1.250 level which could months or years away.
- zSplit
PS: Once the US 10 Year hits 0, there will likely be some sort of massive algorithmic sell-off waiting to pounce; investors should have SLs ready for this.
The real question though is will the 10 Year stop at around -0.150 or will it continue to fall? Only time will tell, but the near-term target is 0.000. In reality, it is very possible we can overshoot the lower trend-line to a whopping -1.000 or lower if the global economy shows no signs of any sort of stabilization and the virus continues to drag on and worsen.
As we move into 2021, yields will likely stabilize and rise, however, this will not be a good thing. Contrary to other recessions and down-turns where the dollar actually rose, in this impending recession, the dollar (DXY) will fall (tank), Gold will go parabolic, and more worrisome, other commodities could eventually spike given the fall of the dollar. That means we could see a surge in inflation eventually, as fiat currencies lose their value as a result of negative rates.
We are certainly entering unprecedented territory and investors must hedge against this unprecedented time by investing in Gold. At this present time, the only equities to seek out are high quality dividend stocks with a history of multi-decade dividend hikes. My favourite in this environment are utility stocks, such as Fortis, which has incredibly high stability and a whopping 46+ year dividend hike increase.
This is not the time to be dip-searching because equities have still a long way to fall and still trade at 17-18x forward P/E representing still at-least a 10-15% overvalued market. At some point, the SPX will test the 2600s and we all better hope that level holds or we will see panic like we never thought would be possible again.
Under no circumstance can equities have a sustained rally (that doesn't fade) until the 10 year hits at-least the +1.000-1.250 level which could months or years away.
- zSplit
PS: Once the US 10 Year hits 0, there will likely be some sort of massive algorithmic sell-off waiting to pounce; investors should have SLs ready for this.
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