I’ve been saying for some time that the biggest bubble of all bubbles is in the bond market. European sovereign debt might just be the first to crisis. Further, global debt has reached 325% of GDP. Academic studies show that economies get into trouble when debt-to-GDP exceeds 90%. Expand that to the U.S. and you’ll find a 105% debt-to-GDP number. (The number is actually much higher — 250% — if you include Social Security and Medicare debts.)
According to Paul Schmelzing, “The current bond market is facing the “perfect storm” of potential steepening of the bond yield curve, monetary policy tightening and a multi-year period of sustained losses due to a “structural” return of inflation resembling that of 1967.”
Don’t despair… click below for ideas about what you can do with the fixed income portion of your portfolio.
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