Two Things On My Mind

via: TFMetalsReport
July 25, 2012

Earlier today, I spent about an hour visiting with Jim Willie. As usual, the conversation was enlightening and thought-provoking. Along those lines, two items have been stuck in my head all day. I thought I’d get them stuck in your head, too.

First, someone asked me in the previous thread if I had asked Jim lately about his statement that gold would soon fall 20% before rising several fold. In all honesty, I never thought to ask him. We generally discuss “big picture” things when we talk so short-term prices fluctuations don’t usually come up.

OK, so here are the two things that are on my mind. First (and I mentioned this in the previous thread and in detail at TTM), is this idea of a U.S. treasury market “Black Hole”. You may recall that Jim started using this metaphor back in early June. For a refresher, you should read this and maybe listen to this

The idea behind the “black hole” is that its gravity is so strong that it sucks in everything around it. Back in early June, the 10-year note was yielding about 1.70%. Today it fell through 1.40%. As money flows toward the “safety” of treasuries, it flows out of other assets like corporate bonds, stocks, municipal bonds, sovereign bonds, high yield funds and on and on. Treasuries increase in price (yield drops) while the selling of every other asset causes their prices to fall. This, in turn, feeds into the crisis atmosphere, causing more selling of everything in order to purchase more treasuries. This makes treasury rates sink even further. This accentuates the crisis atmosphere and causes even more “flight to safety” until the “treasury black hole” has sucked in almost everything. It’s a very interesting concept and we may be seeing it play out in real time. Ponder, please, the consequences of all this and what the world may look like with a 10-year below 1% and a 30-year near 2%.

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