Look: Fed Chief Ben Bernanke thought HE had the power to manipulate interest rates. So when he announced he was creating another $600 billion dollars out of thin air and using them to buy Treasuries bonds, he assumed he would push bond prices up and force their yields down.
That was the entire goal of “quantitative easing #2.”
But something funny happened on the way to QE2: It turns out that the REAL masters of the Treasury and bond markets — investors — had only been letting Bernankethink he was the one in charge.
|Ben Bernanke’s rude awakening: In the end, investors control yields — NOT the Fed!
Almost immediately after the Fed chief’s announcement, investors popped the bubble in bond prices that had been growing since late 2008.
It must have been a rude awakening for Bernanke: Instead of falling as he’d expected, bond yieldssuddenly began rising!
So far, in the three months since Bernanke revealed his newest dollar-printing scheme, 30-year Treasury bondshave lost 9 percent of their value; and the popular iShares Barclays 20+ Year Treasury Bond ETF has declined 15 percent in value.
Worse, because many of the interest rates we pay are tied to these yields, we’re now staring down the barrel of rising rates — like poison to an economy as troubled as ours is.
So why have the Treasury and bond markets confounded the Fed?
Simple: Investors are not dumb. They know that the Fed’s out-of-control money printing can only gut the value of every dollar they invest in U.S. bonds markets — and also every dollar they earn in yield.
Adding insult to injury, the Obama Administration and Congressional Republicans have cut a deal to make the budget deficit FAR bigger, requiring even MORE money printing by Mr. Bernanke.
THIS is the key reason the Treasury market is crashing and yields are surging. And it’s also why we’ve seen enormous volatility in the U.S. dollar and in gold over the past three months:
Gold has spiked three times in the last 90 days, taking us to a new all-time high of $1,432.50. And after each of those spikes, it has corrected sharply.
The same is true for the U.S. dollar: It plummeted 8.8 percent between early September and early November … recovered some of its losses before diving again in late November.
This is precisely what we’ve been warning you about for many months: EXTREME volatility in all the markets. An explosion of profit opportunities; and with them, greater short-term risk.
And this is also why we just posted our 8 Alarming Forecasts for 2011 online:
At a time like this — with volatility rising —
everything depends on getting
the answers to these critical questions RIGHT:
- Stocks are within a few points of setting new highs for the year: Can this rally continue? Or is it destined to suddenly reverse? Which sectors are in greatest danger now? Which seem to be the safest and most promising for 2011 and beyond?
- Treasury yields continue to rise: Is this just a fluke? Or is it the beginning of what could be the most serious bond market catastrophe in decades?
- The U.S. dollar is scraping bottom, flirting with its LOWEST levels of the year: Is this the beginning of the greatest dollar disaster America has ever seen? Or is it merely another blip in the market? (Hint: China holds the key!)
- Gold is on a tear again, hitting one new all-time high after another: Will this bull market last? Or is gold overbought and overdue for a correction? How high will the yellow metal ultimately climb? When should prudent investors double down on gold bullion and mining shares? When should they take their profits and run?
- Food prices are on a rampage: Will agricultural commodities continue to skyrocket in 2011? If so, which ones?
- Oil prices continue to edge higher: Will we see new all-time highs in black gold in the year ahead? Or will economic woes in Europe and the U.S. send oil prices careening lower?
- Economies and stock markets in China and other emerging markets are still exploding: Is now the time to buy emerging market stocks and ETFs? Or are these countries overdue for corrections that create major buying opportunities for you in 2011? Which ones are likely to perform the best?
In the year ahead, each of these forecasts — and the investment recommendations that come with them — could make you a bundle if you heed them … or cost you a bundle if you don’t.
8 Alarming Forecasts for 2011 has answers you need to protect and grow your wealth in the year ahead. It is online now.
Good luck and God bless!