ZH – Gold’s Defiance Of Real Yields Can’t Last Unless Trouble Brewing

“The 10-year real yield is still around 2%, a level unseen since 2009.  That should hurt a non-interest-bearing asset like gold, but it isn’t.”  << yea, kind of like “doctors are baffled”, they know f’n well what is going on!

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Read the article comments to get an idea of what I think is happening – reason for posting the LT bond chart yesterday.

At some point the reality of manufactured inflation will dawn on markets and the belief there will be rate cuts (without a mkt crash first), will disappear and the fed will be compelled to chase (as planned all along) inflation higher with rate hikes (and not too much because they don’t truly want to kill the inflation beast, they just don’t want it to run away from them, just as in the 70’s).

In a world where gravity exists, rates reflect the risk of the principal not getting repaid.  In a stressed economy, the only way to avoid (uncontrollable) rises in rates is to reduce the real value of the principal – through inflation.

Example:  a while ago I had a bond (lent $) worth $1,000 that could buy 20 barrels WTI crude, now it will only buy 12 barrels.  BUT LOOK the odds (as reflected in 5% rates) of me getting my $1,000 back is still pretty reasonable << WRONG fool, the probability of you getting your $ back is good but what you can buy with it is jack $H!t.

The risk of not getting paid back VALUE is going up !

The odds of getting paid back in worthless paper is still pretty damn good and worth 5%.