ochotona wrote:
You'd see gold back to sub-$1000. LT Treasuries would be way high, they're 3% for the 30 year now, could they run up to 5%? 6%? Bonds would get creamed even more. Would the tight money on the long end of the yield curve then tank the stock market?
I think these are the risks for 2017-2018.
I think stocks will take a hit if the ten-year treasury gets up to, say 3.0% - 3.5%. There is a point at which investors will take the "risk-free" asset over the one with the very high P/E ratio. In other words, stocks and bonds will find a point of equilibrium.
I don't buy the notion that Trump is somehow going to cause a default on US treasuries. The USG will need to keep borrowing big if he is to fund what he wants to do with infrastructure. That can't be done if people don't have faith that they'll get their money back.
I'm not saying that there won't be more short-term pain for the PP. Obviously some damage has already been done but we all knew that bonds and stocks were overpriced and that something would bring them down a couple notches. We just didn't know what.
The other thing is that if the USD continues to gain strength, there should be tons of overseas buyers for US Treasuries as they would stand to gain on two fronts, i.e. from the yield spread above their own country's bonds AND and from a currency that is strengthening relative to their own.
As usual, I have no clue about gold except that it will do well if the USD's rock solid standing is ever called into doubt. That was all Harry Browne ever really said about gold... that the USD was the world's number one reserve currency and that folks would flock to the number two currency (gold) when option number one was no longer attractive.