Would you rather die than think?...

The biggest thing that's making me (Porter) cautious in the market today is simply that long-term rates continue to tick higher and higher. Yields on the 10-year U.S. Treasury bond are at a two-year high of 2.79%.

Despite this worry, you can still find a lot of cheap assets out there. You can find a lot of value in Europe. You can likely find value in some emerging-market debt. And some value remains in certain blown-out sectors – like shipping and online education. Value is still there in nooks and crannies.

If you talk to the people who are bullish on stocks, like my colleague Steve Sjuggerud… many will say the No. 1 reason they're bullish is that current interest rates should correspond with stocks trading at price-to-earnings multiples of 25-30. But the current multiple is around 18.

In today's Friday Digest, I'd like to recap what I've long warned our subscribers is the most important trend in the world.

As longtime readers know, I frequently disclaim the ability to teach readers anything. To learn something, you have to be willing to think about what you're reading – especially when it challenges your preconceived notions or carefully maintained beliefs. Many people would rather die than think.

So before we begin, let me warn you… If you don't think carefully about these ideas, they will wipe you out financially over the next several years. If you learn nothing else from us during your subscription period, at the very least, learn this...

I'd like to start with a simple question. This is something anyone who knows anything about the stock market should be able to answer without even thinking about it: What was the better investment in the raging bull market of 1980-2010, stocks or bonds?

Most people know that the U.S. stock market enjoyed a massive, 30-year bull market after 1980. Stocks went up nearly every year. So if I asked you, what made more money between January 1, 1980 and December 31, 2009? Stocks or bonds? You would almost surely answer "stocks."

Indeed, stocks did well over the 30-year period. If you simply bought the S&P 500 and reinvested your dividends, you made 11.3% per year over the period, for a total return of 2,676.8%.

But if you had invested in the U.S. Treasury's long-dated, zero-coupon bonds, you would have done much, much better. According to financial writer Gary Shilling's research, buying 30-year zero-coupon U.S. Treasury bonds each year and rolling them over annually would have made you more than 19% annually during the period, for a total return of 24,879%.

If you want to make a lot of easy money off your friends who consider themselves financially smart, just offer them a $100 bet on whether or not stocks or government bonds made more money for investors during the great bull market of 1980-2009. You'll likely win every time.

Buying long-term U.S. government bonds (that had no risk of default) and simply reinvesting the profits annually would have earned you considerably more money than buying stocks in the 30 years following 1979.

And in 1979, just as the big bull market in U.S. Treasury bonds was about to begin, what did investors think of the bond market?

One of the world's greatest investors, Warren Buffett, wrote in his 1979 letter to shareholders that long-term bonds were "obsolete." Buffett didn't believe the market for long-term bonds would even exist by the time the government's newly issued 30-year obligations reached maturity…

In fairness to Buffett, Paul Volcker wasn't appointed to the Federal Reserve until August 6, 1979. His opinion on long-term bonds probably changed as Volcker's policies began to rein in growth in the money supply, causing inflation to subside and sparking the massive bull market in bonds. But the point I'm making is important: The big moves in markets – the giant, long-term "secular" changes – occur when there is a nearly universal agreement regarding a financial asset's appeal.

Back in 1979, long-dated U.S. government bonds could not have been more loathed. People called them "certificates of confiscation." And no one – not even the "Oracle of Omaha" – recognized the greatest investment opportunity of our lifetimes in front of them.

Last year, the yield on the U.S. Treasury benchmark bond – the 10-year note – hit a modern, all-time low of 1.55%. That is, if you believed the market's price, investors were willing to lend the government $1,000 for the next decade and only receive $15.50 per year in interest.

Yes, you have good reason to doubt that this is a real interest rate, because the Federal Reserve has been purchasing all of the government's newly issued debt – $85 billion worth a month. As a result, we don't know what the free market interest rate would be for our government's obligations. But it's a safe bet that "higher" is the correct answer.

Back in January 2009, I warned that the trend toward lower interest rates (and higher bond prices) couldn't possibly continue. I said we were sitting on the verge of a massive shift higher in interest rates. Here's what I wrote:

Since then, our federal government's spending habits and debt accumulation have become significantly worse. The government's total debts have increased 70% in only four years – a truly stunning and nearly unbelievable increase. And despite any major war or financial crisis, we continue to run annual deficits of around $1 trillion.

Last May, I saw something in the market I literally couldn't believe: Junk bonds were trading at prices that reduced their benchmark yields to less than 5%. I wrote at the time that this had to be the top in bonds because default rates alone would wipe out all the gains that were possible by buying a portfolio of junk bonds at those inflated prices.

And so... just as the investment community was overwhelmingly bearish on bonds in 1979, just prior to their greatest bull market in history... the market became more bullish on bonds in May than it had ever been during my lifetime – just as we hit a low point in their yields.

When I began warning in 2009 about the inevitable collapse of the U.S. bond market, I couldn't have foreseen the Federal Reserve's massive intervention. The central bank has bought about $3 trillion worth of bonds over the last four years.

But as it began to do so, I recommended a simple way to protect yourself from this incredible folly… and also a way to judge our progress toward a financial apocalypse.

All you had to do was compare the price of the long-term U.S. Treasury bonds with the price of gold. A simple way to do this was to watch the prices of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) and the SPDR Gold Shares Trust (GLD).

My reasoning was simple: Printing money doesn't create value, it just creates inflation. By manipulating the bond market, the Fed could force interest rates lower (and bond prices higher). But sooner or later, that bubble would burst, most likely triggering a massive inflation. As people began to hedge against this growing risk, the gold price was sure to rise.

If you'd done nothing else over the last five years, but simply sold the long bond short and bought gold, you've done pretty well. Here's the five-year chart of the two positions. As you can see, gold has outperformed the long bond by about 50% over the period.

Interestingly, though… this simple hedge stopped working over the last two years after gold investments became popular… The gold trade had become too "crowded."

Over the last two years, the long bond has done better than gold. Markets don't move in a straight line.

But today… my "trade of the decade" is working again. It's working because gold's recent correction has driven much of the speculative excess out of the gold price. And the trade is working again because the Fed is being forced to withdraw its support from the bond market.

We're about to find out what the real price of bonds should be... something that's sure to be extremely painful from the mass of investors who've come to believe bonds will never fall.

My advice? Beat the crowd. Sell the long bond. Buy gold. Sit tight.

This trend… the collapse of the U.S. bond market and the role gold can play in protecting your wealth… is a key part of the scenario I've called the "End of America."

As I've written many times, our government's debt-addicted spending will eventually cause our creditors around the world to lose faith in the dollar… They will abandon it as the global reserve currency.

Earlier this year, I updated my work on this subject and released a video describing how the scenario will play out from here. I encourage everyone to take the time to view it, here. The recent uptick in interest rates is just the beginning.

And of course, we are constantly monitoring the "most important trend in finance" in the monthly issues of my Investment Advisory.

Also in my latest issue, I reveal the name of a company that is secretly becoming the next Berkshire Hathaway (Buffett's holding company, which has made billions for investors). The CEO of this company is a genius financial operator… And he's made a personal fortune.

Recently, this man has been making stealth moves to transform his company into the next Berkshire Hathaway… In my issue, I explain how he's hiding the crown jewel of his business (a name you'll recognize), so investors don't realize what he's doing.

You can try a risk-free subscription to my Investment Advisory by clicking here… If you decide it's not for you, we offer a four-month, 100% money-back guarantee.

New 52-week highs (as of 8/15/2013): Fission Uranium (FCU.V) and short position in iShares Barclays 20+ Year Treasury Fund (TLT).

In the mailbag… a subscriber asks a prescient question. Send your e-mail to feedback@stansberryresearch.com.

"I always appreciate Porter's comments from the mailbag. Based on the likely direction of interest rates going forward is now the time to look at [exchange-traded funds] that are inverse (short) the 10 and 30 year Treasuries such as ProShares Invers 7-10 Year (TBX) or the others?

"Which is the best to own in this coming environment? 10 yr? 20 yr? or 30 yr?" – Paid-up subscriber DJ

Porter comment: Hopefully, today's Digest answers your question…

Regards,

Porter Stansberry
Baltimore, Maryland
August 16, 2013