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The Vote Heard Round the World – Britain Just Pulled the Pin On the EU Grenade
The British gave the global financial landscape a kick in the teeth after voting to leave the European Union (EU) on Thursday.
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Martin Hutchinson has a reputation for being bearish at exactly the right time. Slate magazine singled him out - above even famed economist Nouriel Roubini - as the financier who most accurately predicted how bad the 2009 bear market would turn out to be. In June 2008 - at a time when the Dow was above 12,000, and most folks were calling for it to go higher - Martin predicted the index could nosedive all the way to 7,800 (it actually spun down to 6,600). Before grabbing recognition for his gutsy timing, Martin worked nearly 30 years as an investment banker, with extensive experience in both New York and London. He's served as a senior vice president and head of derivatives for Creditanstalt-Bankverein, director of the Spanish private firm Gestion Integral de Negocios, and advisor to the Korean conglomerate Sunkyong Corp. But it was Martin's work in Bulgaria, Croatia, and Macedonia that solidified his reputation as a true "hands-on" expert on the developing economies. As the U.S. Treasury advisor to Croatia, he helped the country establish its own T-bill program in the 1990s, launch its first government bond issue, and start a forward currency market. Martin is the author of several books. He also served as the business and economics editor at United Press International during the early 2000s, where he jumpstarted the financial-news operation of that historic wire service. He earned his undergraduate degree in mathematics from Cambridge University, and an MBA from Harvard University. He lives outside of Poughkeepsie, N.Y, with his wife, Anna. Martin is our Global Investing Specialist. He serves as editor of the Permanent Wealth Investor, where he focuses on "Alpha Bulldog" stocks that pay high, reliable dividends. In his newest advisory, the Merchant Banker Alert, Martin uncovers the fastest-growing companies in the fastest-growing economies and brings those ideas back home to you.
Bond yields have been generally declining, and the market as a whole is set up for them to continue the trend.
Not bad, right?
It's extremely dangerous – to all investors – because it can't go on forever. It's not a question of if this might happen, it's a question of when.
Fortunately, there's one antidote to this poisonous path. But first, you need to see the path we're on and its dire consequences.
Bonds are integral to the entire financial system and the economy as a whole. At some point sooner rather than later, bond yields will start rapidly increasing – and the bond market will become a Death Star, devastating the global economy.
Since 2008, and to a large extent since 1995, the bond market has been subsidized by the Federal Reserve, which has consistently printed more money than the economy demands – with broad money supply rising by over 8% a year since 1995, compared to a nominal GDP rise of less than 5%.
That subsidy has been hugely increased since last September, with the Fed buying $85 billion monthly of long-term Treasury and mortgage agency bonds.