Is the Market Sending Us a Warning?

$15 trillion in negative-yielding debt and counting... A 'blow off top' in bonds... 'Inversion' is spreading... Commodities are plunging... The relentless gold rally continues... Is the market sending us a warning?...

Last month, we noted a stunning new record in the global debt markets...

In short, thanks to renewed "dovishness" from the world's central banks, the global value of negative-yielding debt soared to more than $13 trillion as of the end of June.

Now, just a few weeks later, even that record figure is beginning to look tame. The spread of negative interest rates has been accelerating. And as you can see in the following chart, it just surpassed $15 trillion this week...

The rapid spread of negative-yielding debt has coincided with a stunning rally in government bonds...

In fact, the charts of many bonds are starting to look more like high-flying growth stocks than anything you typically see in the credit markets. The following chart of U.S. Treasury bonds – represented by the iShares 20+ Year Treasury Bond ETF (TLT) – puts these moves in perspective...

But again, many of the charts of government bonds around the world are showing similar, near-parabolic moves. And as a result, yields are plunging back toward record lows...

Here in the U.S., the yield on the benchmark 10-year Treasury note fell to a new two-and-a-half-year low of 1.60% today...

That's less than 50 basis points above its multidecade low of 1.34%, set in the summer of 2016. It was still trading above 2.5% as recently as May.

These aren't the only concerning signs in the Treasury bond market...

Regular readers know the Treasury yield curve has been one of the most reliable "early warning" signals for stocks and the economy for decades.

In short, whenever the yield curve has "inverted" – whenever short-term interest rates have exceeded long-term rates – bear markets and recessions have inevitably followed anywhere from six to 24 months later.

Back in March, we noted that more than 50% of the yield curve had become inverted. However, as a result of these recent moves, nearly three-fourths of the yield curve is inverted today...

We're also seeing some big moves in the currency markets...

On Monday, we noted that China allowed its currency, the yuan, to plunge below the important level of 7 yuan per U.S. dollar.

But since then we've seen many other currencies move significantly lower versus the dollar as well. And as macro investor Raoul Pal – who co-founded the Real Vision media group with our friend Grant Williams – noted this morning, these moves have placed the long-term uptrends of several of these currencies in jeopardy. This includes the euro, the Australian dollar, the British pound, the Canadian dollar, the Korean won, and the New Zealand dollar, among others.

Meanwhile, several important commodities are moving, too...

For example, copper just plunged to a new two-year low today...

If you've been with us for long, you know copper tends to be a reliable leading indicator of the global economy due to its use in a broad range of industries.

Crude oil is a critical economic commodity as well. And as you can see in the next chart, it appears to be rolling over again, too...

Last, but certainly not least, you may have noticed precious metals are surging...

Of course, we've been following the big breakout in gold for months now. But this move appears to be strengthening. As you can see in the long-term chart below, gold touched a fresh six-year high above $1,500 an ounce this morning...

Better yet, it looks like silver is now joining the "party," too.

You see, if we've had one major criticism of the gold rally to date, it's that silver has been underperforming gold. That's unusual... During big precious metals bull markets, you typically see the opposite. Silver usually leads gold to the upside.

Again, that hasn't been the case in this recent rally so far. But that could now be changing...

Since the latest pullback ended in May, gold is up a little more 17%. But silver is up nearly 20%. And it just had its best day of the year today... rallying nearly 5% to more than $17 an ounce.

Now, you're probably wondering what this all means...

Unfortunately, when we consider the evidence – a "panic" into the government bond market, spreading yield curve inversion, foreign currency and commodity weakness, and a relentless rally in gold – we can't help but reach an uncomfortable conclusion...

In short, it appears the market is now discounting a global recession... a burgeoning debt crisis... or possibly both. In any case, a new bout of market trouble could be approaching.

Now, let us be clear...

Despite these concerns, we don't believe a crisis is imminent just yet.

The biggest reason has to do with the corporate debt markets. Specifically, the high-yield (or "junk") bond market is not yet signaling trouble.

While both junk bond yields and "spreads" have been moving higher, they remain historically low. They're well below levels that have indicated serious problems in the past.

That could change... so we'll be keeping a close eye on the situation. But for now, history says we shouldn't get too bearish just yet.

Of course, that doesn't mean we can't see further market weakness in the near term...

We could easily experience another sharp correction like the one last fall, even if we ultimately avoid a recession awhile longer.

Either way, we believe the case for holding plenty of cash and a healthy allocation to gold is stronger than ever. So if you've not yet taken this advice to heart, consider today's Digest fair warning.

One last thing...

Earlier this year, Porter announced that legendary gold analyst John Doody would soon be bringing his must-read gold research to Stansberry Research.

Well, we're pleased to announce that the big day is almost here... John's excellent Gold Stock Analyst service is officially relaunching this month. And we're holding a special live event on August 21 to celebrate.

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Click here for all the details... including how you could walk away with up to $20,000 worth of gold coins, just for watching this free event.

New 52-week highs (as of 8/6/19): Sprott Physical Gold and Silver Trust (CEF), DB Gold Double Long ETN (DGP), SPDR Gold Shares (GLD), Invesco Value Municipal Income Trust (IIM), Kirkland Lake Gold (KL), NovaGold Resources (NG), Royal Gold (RGLD), and Vanguard Inflation-Protected Securities Fund (VIPSX).

In today's mailbag, a reader sends a thank-you to Bryan Beach for yesterday's Digest essay. What's on your mind? Let us know at feedback@stansberryresearch.com.

"Thanks for sharing your story. It brought a smile to my face as I fondly remembered my wonderful mother-in-law giving each of my sons $250 worth of XOM, which at the time was about two shares each. Shortly thereafter the stock split 2:1 and they were on their way. I added a little bit more along the way but it was this that actually got me interested to begin with in investing. After my mother-in-law became ill I had to take over all her investments, which were substantial, and I didn't know anything. She taught me as much as she could and then I hooked up with you folks. As for this whole SEC lawsuit stuff, yeah, it's kinda crazy. Leave me out of it if possible. Thanks for the walk down memory lane." – Paid-up subscriber Karen T.

Regards,

Justin Brill
Baltimore, Maryland
August 7, 2019