A Crisis Pending in the Bond Market?
Did the Dow Jones close the week at a new all-time high? It did not. Its last BEV Zero from February 10th still stands. But this week, the S&P500, and the NASDAQ’s Composite & 100 indexes, all closed at new all-time highs, for three of this week’s five trading-days. For the S&P500, it’s actually better than that. Since April 15th, it has seen eight new all-time highs, while the big NASDAQ indexes are making new all-time highs on a regular basis too, and have been for weeks.
Okay, so what is preventing the Dow Jones from making market history too? I haven’t a clue. But in defense of the Dow Jones, below in its BEV chart, it did close the week, deep inside of scoring position; within 5% of its last all-time high.
And what happens when an index closes in scoring position? It goes on to make a new all-time high, or so we should assume it will, until it once again closes below its Red BEV -5% line, seen below.
Maybe we shouldn’t be asking why the Dow Jones isn’t making new all-time highs, but why the S&P500, and the big NASDAQ indexes are, when in the past few weeks, the Dow Jones trades as we see below?
Well, go ahead and ask that question. I don’t have an answer to that question either. But if next week, the Dow Jones does see a new all-time high, or better still, a few of them, maybe I’ll stop asking these stupid questions, questions I have no good answers to.
This week in the chart plotting the Dow Jones in daily bars, below, it saw only one good day; Thursday. And Friday refused to add to the gains seen the day before.
Below, we see the S&P500 at the #1 spot, in my table listing the BEV values for the major market indexes I follow. All of the top seven indexes seen in the table below, closed the week at a new all-time high. Unlike the Dow Jones, they also saw new all-time highs on Thursday too. And guess who made new all-time highs on Monday too?
Where in the heck is the Dow Jones in the table below? It closed the week at #10, and this week, never came within 1% of making a new all-time high. Well, maybe next week it will finally make the effort to close at a new all-time high. And then maybe not. But the stock market is much more than just the Dow Jones.
When we see at Friday’s close, and all during this week, the top fifteen of these indexes closed each day at a new all-time high, or in scoring position (within 5% of their last all-time high), we can be sure that April’s correction is now completed, and the stock market is once again advancing.
That sounds so good. But I still don’t like this stock market.
In my performance tables above, as it has been for well over a year, the old monetary metals, and the mining companies that dig them out of the Earth’s crust, remain in the top three spots.
And not just that. Look at their BEV values, how far their valuations have been clawed-back from their last all-time highs. Silver’s BEV is -36.38%, or 36.38% below its last all-time high, a deeper claw-back than anything else seen in the table. Still, silver is #1 in the table, advancing 212.19% since 05 November 2021.
Do I need remind you how the gold and silver miners in the XAU (#2 above) have been beaten up since their last all-time high on February 27th? A claw-back of 24.87%, as seen in its BEV value in the table above. Gold too (#3 above) is down by 15.79% since its last all-time high from last winter. When are these precious metal assets going to stop wasting everyone’s time, and resume their advance?
Again, I’m asking questions I don’t have any good answers to. I’d make a terrible lawyer in a courtroom. But this isn’t a courtroom. It’s the market, where no one really knows what they’re talking about. And if you think someone does, you’re wrong. Except maybe, just maybe Mr. Jamie Dimon of JP Morgan below.
Jamie Dimon of JP Morgan warns of a “pending crisis in the bond market, as global debt risks build.” As Mr. Dimon sees it, the ever-increasing levels of government debt, debt that must be serviced, is approaching crisis levels.
I’m not going to argue with that.
https://www.cnbc.com/2026/04/28/jamie-dimon-bond-crisis-global-debt-risks.html
The above mentioned “policymakers,” are the same people who refused to do anything about Iran’s Ayatollahs obtaining a nuclear bomb, a nuclear bomb aimed at them. It’s doubtful they’ll ever do anything about the growing levels of government debt, like stop spending borrowed money to buy votes.
To better see what Mr. Dimon is concerned about, below is a chart of the US National Debt, going back to 1952.
If one were to read the dusty old pages of Barron’s from the 1950s, America’s ever growing national debt, was a concern even seven decades ago. But in the early 1950s, Barron’s could publish every bond issued by the US Treasury in a little rectangular box, that barely took any space on a single page, a block of text of only 3 by 4 inches.
Today, the same information on Treasury debt takes pages to include all of the bonds issued by the US Treasury.
https://www.wsj.com/market-data/bonds/treasuries
The above list only covers the debt Washington is willing to admit too. There are also the “unfunded liabilities” such as for Social Security, whose reserves are in, and I kid you not, in “non-negotiable bonds” that don’t trade in an open market. Dubious bonds kept hidden from the public.
I’m glad someone of influence is finally bringing up this topic of out-of-control growth in consumptive-debt by America’s, and yes of other global politicians; people who feel entitled to spend the income of those not yet born. But I fear it’s all too little, too late, if one hopes to save the current global economic / financial system.
Take a moment to study the chart below, what do you think? Me personally? I think, I’m liking gold and silver even more, as the national debt grows ever higher.
In December 1952, the national debt was $262 billion dollars, with the yield for the US Long Bond at 2.71%. Three decades later, in September 1981, the national debt broke above $1,000 billion ($1 trillion dollars). The bond market “went ape,” as the entire US yield curve reacted to a trillion-dollar US national debt, by increasing to double digits, as seen below.
In 1981, in the T-bond market, it was possible to lock in a 15%, annual return for thirty years. However, rising bond yields = deflating bond prices. So, yields of 15% on the long T-bond, marked the bottom of a massive bond-bear market that began in 1958.
After over two decades of deflating bond prices, by 1981, few people wanted anything to do with a 30Yr T-Bond yielding 15%. But that is how things are, at the bottom of a multi-decade long, bond-bear market.
But that was then, and this is now, where the US National Debt has increased by a factor of 39 since 1981, as T-bond yields have collapsed into single digits, as seen below.
What is also seen below, is a chart of US Currency in Circulation (CinC), the volume of paper dollars in circulation, my favorite monetary metric of US inflation. As you can see in the CinC chart below, since FDR’s New Deal of the 1930s, American monetary inflation has been relentless, and so far, unending.
But where monetary inflation from the Federal Reserve System flows to, is not always the same. Where this inflation flows to, can be seen in yield of the US long bond below;
- rising T-bond yield = inflation flowing into consumer prices / rising CPI inflation,
- declining T-bond yield = inflation flowing into financial assets / bull markets on Wall Street.
That rising CPI inflation drives bond yields, and gold prices higher, can be seen during the 1969 to 1980 bull market in gold below. NOTE: following the top in T-bond yields in 1981, began the historic bull market on Wall Street, as monetary inflation stopped flowing into consumer goods, to then flow into the stock, bond, and real-estate markets.
What is remarkable, is how our current gold-bull market began in 2001, where the price of gold increased from $253 an ounce in February 2001, to $2,061 in August 2020, as the yield for the US long bond below, fell from 5.50%, to an incredible 1.20%, two decades later.
This shouldn’t have been, but it was. Which hints of the potential of owning gold and silver today, as their bull markets finally, and ultimately fully express themselves sometime in the decades ahead.
Note below how T-bond yields began rising in August 2020. From reading what Mr. Dimon said above, about rising government debt, resulting in increasing risks in the bond market, I think he believes the current rise in T-bond yields, has much more to go before they finally peak, sometime in our increasingly uncertain future.
Above, I placed a thick Red Arrow at early 2020, marking the March 2020 Flash Crash, when FOMC Idiot Primate Powell implemented his “Not QE#4.” CinC jumped up several trillion dollars almost instantly, as the FOMC “stabilized market valuations.”
This wasn’t the first time the FOMC had done this, as noted below by the Bank of China in 2009, during FOMC Idiot Primate Bernanke’s QE#1.
Since the bottom of T-bond yields in August 2020, yields have risen considerably. In my humble opinion, we are observing the beginning of a massive bond bear-market, exactly as seen from 1958 to 1981. The stock, and real-estate markets may not * YET * have followed the bond market down, but someday they will.
As I see it, there is an unknown threshold value for the yields in the bond market, that when exceeded, the world that investors have known since the early 1980s, will forever change.
Where that yield’s threshold value may be is currently not known, for this 30yr T-bond issued in February 2020 (below). Obviously, it’s a current yield somewhere above 5.25%. Be that threshold trigger at a yield of over 6%, or 7%, I don’t know. However, this bond will be actively trading until February 2050. Should (when) its current yield breaks above 8%, I expect the world will have reason to stop worrying about “global warming” and “greenhouse gasses.”
This T-bond has been a loser for any widow or orphan who purchased it in August 2020, when T-bond yields bottomed, and held on to it since then. As its yield increased from 1.19% six years ago, to over 5% today, its valuation has been cut in half. T-bonds aren’t supposed to do that, but this one did.
To this market enthusiast, I see this T-bond’s valuation’s (Blue Plot below) as a bearish leading indicator for the stock and real estate markets. If not today, then someday.
Barron’s also has decades of weekly data on corporate bonds, its Best Grade, and Intermediate Grade Bond Yields, as seen below. The data seen below is a weekly data series.
Take a moment to study these two bond yields – do you see it? How since the Great Depression of the 1930s, intermediate grade bond yields spike upwards during a market crisis.
That intermediate grade bond yields are currently * NOT * spiking upward, is a good indicator that the Dow Jones (my proxy for the broad-stock market) still has more headroom to inflate its valuations to the upside.
I follow these two corporate bond series very closely, as the century of market history seen below, shows when intermediate grade bond yields begin to rise dramatically, above best grade bond yields, that is a positive indication that Mr Bear is having his way with market valuations, trading on Wall Street.
You should write a nice letter to Barron’s statistical department for what you see above. Because if the guys there didn’t research, and then publish this data every week since 1926, you wouldn’t know the Great Depression market crash wasn’t just a single crash, but actually two market crashes;
- 1929 to 1932 / Black Circle,
- 1937 to 1942 / Red Circle.
You would also not know that the Depressing 1930s, so frighten the banking system and Corporate America, that they acted very responsibly for many decades thereafter. As seen by the absence of intermediate grade bond yield spikes from the early 1940s, to 2000; sixty years.
But then, so did most Americans who lived through the Great Depression. My parents and grandparents all saw debt as just another dirty 4-letter word. Banks were places to deposit their savings into, not somewhere to take advantage of a low-interest rate loan.
That it wasn’t until the 1990s, with Alan Greenspan inflating a huge inflationary bubble into the NASDAQ’s High-Tech Sector, that we saw another market crisis in 2000, when that boom turned in to a huge bust (Red Star above).
The FOMC’s Sub-Prime Mortgage fiasco was many times worse than their NASDAQ boom and bust. We can see the truth of that, as the spike in intermediate grade bonds in 2009 (Black Star), was greater than the intermediate grade yield spike seen in 2000.
The next spike in intermediate grade bond yields, happened in March 2020, during the flash crash (Green Star). This yield spike was “stabilized” by the FOMC, as for the first time in the history of the Federal Reserve, the FOMC began using inflation to purchase corporate bonds in the open market to keep those corporate bond yields from spiking. Had they not done so, I think there was an excellent chance the Green Star in 2020, would have exceeded the yield spike, the Black Star in 2009.
That is just my opinion. I wonder what Jamie Dimon would say about that, if he saw this chart of Barron’s Best and Intermediate Grade Bond Yields, going back to 1926?
Anyway, do something nice for someone doing a great service for mankind, as seen above, by sending a Thank You to a really nice guy; Mike Kokoszka at Dow Jones. Poor Mike. Dow Jones’ management keeps him locked in a dimly lit office in the basement, with no one to talk too. Well, possibly I’m overstating his dismal working conditions. No matter, I’m sure he’d like a nice letter from my readers, thanking him for all the statistics he produces for us.
Now on to my gold BEV chart. Last week, gold closed with a BEV of -14.08%. Looking at gold’s closing BEV for this week below, it closed with a BEV of -15.79%, indicating this week, gold moved down from the week before. Which is the wrong way for gold to have moved.
I remain positive about the near-term prospects for gold and silver. However, technically gold’s BEV chart below is a bearish chart, one with a repeating pattern of lower highs and lower lows.
If gold breaks below its BEV -20% line, that will confirm this bearish pattern. However, if gold breaks above its BEV -10% line, the pattern will have been disrupted. Let’s see what happen with this in the weeks to come.
But one way, or the other, I remain long-term bullish on gold, silver, and the precious metal mining shares. If you disagree with that, go back and reread everything above on yields in the bond market.
I’m not a trader, someone who buys and sells assets frequently. There is nothing wrong with that. Some people make good money being traders. But over the long term, most people don’t. I’m an investor, someone who buys low, to then sell high, knowing it may take some time to complete this cycle.
One trait all successful investors have in common, is their ability to identify markets that are cheap, and their willingness to buy early, and hold for the long-term. In the stock market, one group I know that is currently very cheap, are the gold and silver miners in the XAU below.
At this week’s close, the XAU was down 25.58% from its last all-time high, as seen in its BEV chart below. But this short-term loss, doesn’t change the fact that the gold and silver miners, are historically cheap, making them compelling buys for investors who might consider them for their portfolios.
Take a look at the XAU above. In January 2015, it was down over 80% from its last all-time high of April 2011, ouch! And it didn’t see any new all-time highs, until August last year, a full ten years after that 80% bear market bottom in 2015. But to most people, and money managers, gold and silver mining are still not something they want to buy and hold, which is why they are cheap.
How cheap are the gold and silver miners? Thanks to Barron’s, who since 1938 has weekly compiled the statistics for their Barron’s Gold Mining Index (BGMI). And a good friend of mine, Goeff, who took the time to compile weekly data on Homestake Mining going back to January 1920, so I could extend the BGMI back to 1920.
The plot below is the ratio of the BGMI to one ounce of gold, for over the past 100 years, Woow! Though the valuation of the BGMI has always fluctuated, the price of gold did not.
Before August 1971, by law the dollar was gold. From 1920 to 1934, an ounce of gold got you $20.67 in paper money and pocket change. After 1933, by law, an ounce of gold got you not only $35, but if someone was an American citizen, that ounce of gold also got them hard-time in prison, as Washington made gold ownership a felony for Americans.
President Ford in the 1970s, made it legal for American to once again own gold bullion. In the 1980s, President Reagan sponsored legislation for the US Mint to once again mint gold and silver coins; the American Eagle precious metal coins.
Anyway, after 1968, the price of gold was allowed to float in the market place, which is something to be aware about for the plot below. Meaning, the plot before 1968 may be of historic interest, but not very useful for understanding today’s BGMI, or the current price of gold.
With that insight into the chart below, the gold and silver miners in the BGMI, and the XAU, are historically cheap. Making them, in my opinion, compelling values. Let’s look at what this chart, and table below suggests is possible for the gold miners in the BGMI
The table below, using this week’s close in the price of gold ($4,615.55), shows the impact on the BGMI, as the BGMI / Gold Ratio increases up to a ratio of 4. A ratio of 4 is within the historical range of this ratio, since 1968.
As seen above, in terms of the gold these gold miners produce for the gold market, the BGMI is extremely cheap, currently taking only a half ounce of gold to purchase the BGMI. We should also assume that as time advances, the price of gold will also increase, along with the BGMI / Gold Ratio. The leveraged impact this will have on the gold miners’ valuations will be significant.
On now to gold’s step sum table below. Looking at gold’s 15-count, it remains negative, with lots of -5s. That tells me the current correction in the gold market continues, with daily declines in the price of gold dominating daily advances.
But this is a temporary situation, as in the weeks to come, gold will once again see daily advances dominate daily declines. I expect to see gold will then advance to new all-time highs. Or so my theory goes, but it looks good.
Look at all those daily declines in the price of gold below. In the past twenty-one trading days for gold, only seven saw the price of gold advance.
But note, since March 27, the price of gold has still advanced, in spite of this flood of declining days. Maybe what we bulls in the gold market need, is for the bears to really push down hard on the price of gold, down to a BEV of under -20%, under $4300, to provide a solid bottom, for gold too bounce off of.
That might happen, don’t think it can’t! But better yet, to see advancing days once again outnumber daily declines in the gold market, as gold surges up to new all-time highs. One thing for sure, this correction in the gold market is getting stale.
Look at the Dow Jones. Since April 17th (47,447.43), it has seen only two daily advances. Yet, it has still advanced 52 points at this week’s close. I’m hoping the gold market soon takes the hint.
Mark J. Lundeen
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