From the Editor: Subscribers who followed Keith's most recent play on U.S. Treasuries locked in a 100% gain on Friday. But "this game is a long way from over," he says. So here's what he's recommending now. Take notes. "Home run potential" isn't a phrase Keith uses lightly…
As I'm writing this, halfway through Wednesday's session, stocks are in danger of closing in the red for a fifth straight day. And this is all you'll hear about today.
Yet bonds are telling you the real story.
In fact, at this point, they are the next best thing to the Holy Grail if you've got the right perspective and understand what's happening.
This is a big moment.
It's big for uber-investors like Bill Gross, who just experienced something brand-new for PIMCO.
And it's big for you.
So at the very least, strongly consider the first move I'm going to show you today. You don't have to buy a single bond to take advantage of its home run potential. The other two moves I'm going to share with you simply "ice the cake."
But let's go back to the 1980s for a minute, when all this payoff potential began to build…
The Reversing of a 30-Year Trend
For years, we've seen bond prices rise almost without interruption. In the process, yields, which move in the opposite direction, have plummeted to historic lows.
Since the 1980s, the decline in yields has been especially steep, as you can see in this chart of the bellwether 10-year Treasury from the St. Louis Fed… lulling millions of investors into a false sense of security via ultra-low interest rates.
Then, as the old joke goes, a funny thing happened on the way to the market:
The Fed mentioned tapering for the first time earlier this spring.
Not surprisingly, yields are moving higher while the whispering in the hallways is turning into a full-blown conversation… Will the Fed start winding down stimulus sooner rather than later?
The markets are acting like this is a fait accompli, but I am not so certain.
As you know, I've said that Bernanke doesn't have the guts to take his foot off the gas. More to the point, he can't risk the market throwing a full-blown "taper-tantrum."
That's why the fact that he isn't going to this year's Jackson Hole Summit is critical; my guess is that he wants to let somebody else establish leadership so that the fireworks can begin under the next Fed Chairman (or Chairwoman's) watch.
Ironically, I think the event should be more appropriately titled the "Jackson Black Hole," because anybody who goes there is sucked into an alternate reality. But we'll come back to that story…
His not being there is implicit confirmation that the transition point we've long known is coming may be sooner rather than later.
The Exit Rush Has Begun
So far, investors have yanked more than $20 billion from bond funds this month alone.
While that's down from the nearly $70 billion they took out in June, we could see more than $500 billion coming out of bond instruments by the end of the year.
In fact, in June, investors pulled nearly $10 billion out of Bill Gross' Pimco Total Return Fund (PTTRX).
That's the largest outflow from the world's biggest bond fund since Morningstar started tracking the fund's flow in 1993.
This has prompted some serious selling across the spectrum, and it's only going to accelerate.
At the same time, yields, which run in the opposite direction from prices, are rising. The 30-year is now 3.87%, while the bellwether 10-year Treasury yield is pushing 2.83% after backing off from a Monday high of 2.88%.
Here's what that means…
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs The Geiger Index, a reliable, emotion-free guide to making big money and avoiding losses, and High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.