The Great Rotation

Financial media outlets are telling you only part of the story driving the latest bond market selloff.

Sure, rising inflation expectations and prospects for stronger U.S. growth are bearish for bonds. But it’s the foreign liquidation of bonds that’s doing the heavy lifting. And my analysis says it’s going to get worse before it gets better …

Reason #1: Foreign governments were already selling Treasuries hand-over-fist ahead of the presidential election. This is highlighted by Treasury International Capital (TIC) data released this week that showed the liquidation trend firmly entrenched in September.

China, for example, holds a mind-boggling $1.157 trillion in U.S. Treasury securities (see chart below), the second largest holder on the planet. And they’ve been selling those Treasuries to fight against yuan devaluation. They have plenty of inventory left to sell as they contend with capital flight and a pullback in trade. So, this could only be the beginning.

mam-chart

Saudi Arabia is another heavy seller of U.S. Treasuries. I talked about their dire financial condition in a previous article. With those conditions likely to continue, you’re going to see more selling. In fact, they’ve liquidated nearly one-third of their Treasury holdings since the start of the year.

Reason #2: Growing budgets and need for more funding.

Currently, U.S. debt stands at a record $19.8 trillion. That’s trillion with a “T”. And it looks like that’s just the beginning: The Committee for a Responsible Federal Budget expects an additional $4.6 trillion over the next 10 years.

And where are they going to get all that money? You guessed it. More Treasury supply.

Reason #3: Nations are scared to death over a Trump regime – especially after all the campaign rhetoric about protectionist views was made loud and clear. Labeling China as a currency manipulator and repealing the TPP makes bond investors jittery and looking for alternatives.

Why is this important for you?

Simple. With everyone selling bonds, that money is looking for a place to land. And that home is the U.S. stock market.

The fact is many U.S. blue-chip stocks have stronger balance sheets than most national governments and are a safer place for your capital.

Result? U.S. stocks are likely headed higher in a big, big way.

In fact, my model work indicates the Dow will get to 30,000 before it’s all said and done.

For now, I am looking for a monthly close on the Dow Jones Index above 18,500 to validate the next leg higher.

But don’t just buy any stock willy-nilly. My members benefit from my key insights into which stocks to buy now … and which to avoid.

Stay safe and best wishes,

Larry

Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader. Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.

Comments 17

Tj Blue November 18, 2016

Fpllow the 'buy back trend' for your blue chips. Good hunting!!!!

Cecilia November 18, 2016

When should we be expecting to enter the stocks above mention? Maybe in your next RWR?

john November 18, 2016

LARRY DENT RESEARCH IS SAYING THAT GOLD AND SILVER ARE GOING TO SINK TO THE BOTTOM FAST. DO YOU AGREE AND WHY ? THANKS JOHN MPLS MINN. 56 YRS IN THE HARLEY CUSTOM BUSINESS. ps this is the first year that used tires outsold the new tires..........that tells me something big is happening. 56 years and nothing like this has ever happened to us before. glitter is not selling anymore......just necessities to keep the motorcycles on the roads. thanks john twin engine nitro record holder.

F151 November 21, 2016

John, What would be your recco for a first time harley buyer?

Mike November 18, 2016

So Larry what up with gold is it time to dump stocks or whole and buy more

ron November 18, 2016

I understand what you are saying about treasuries but how will it change the municipal or corporate bonds/mutual funds??

Clark Brozowski November 18, 2016

How high do you see interest rates going in the next year & at what level do we buy gold?

Clark Brozowski November 18, 2016

This is for Larry

Dave Mann November 18, 2016

What stock do you predict likely to b able to survivor of head winds

Craig Bradley November 19, 2016

Well, you gave non-members a big clue: Buy the DOW 30 !

Edward Nofer November 19, 2016

Mr. Edelson, I have followed your comments for years now primarily those on markets and trends. In short I do not consider you as an individual stock analyst. Am I wrong?

Bill November 19, 2016

What about GOLD?

BILL ACKERMAN November 19, 2016

HELLO LARRY, IF ITALY, IN THE FIRST WEEK OF DECEMBER, 2016, VOTES ITSELF OUT OF THE EUROPEAN UNION, WOULD THAT NOT HAVE AN IMPACT ON GOLD AND SILVER PRICES ??? ABOUT 7 TO 10 DAYS AGO, I SENT YOU A QUESTION THAT I NEVER HEARD BACK FROM YOU ON ??? THE QUESTION WAS ON THE FIRST OF JANUARY, 2017, CHINA WILL BEGIN SELLING GOLD CONTRACTS, WITH A 100% BACKING WITH ACTUAL GOLD STORAGE IN THE VAULT FOR EACH GOLD CONTRACT SOLD. IN THE U. S., ONE CONTRACT OUT OF 240 OUTSTANDING MIGHT HAVE THAT 1 CONTRACT BACK WITH GOLD STORAGE IN THE VAULT. WOULD THAT NOT HAVE AN IMPACT ON GOLD AND SILVER PRICES WHEN CHINA BEGINS SELLING GOLD CONTRACTS. ??? IN YOUR REAL WEALTH REPORT YOU MENTION ROYAL GOLD, INC PAYING A 1.4 PERCENT DIVIDEND ??? I HAVE BEEN BUYING A SMALL COMPANY THAT IS A ROYALTY CO. AND A LAND INVESTMENT CO. CONTROLING AND OWNING MINING PROPERITIES. IT PAYS A 5% DIVIDEND AND AS THE PRICE OF THIS STOCK GOES DOWN, THE DIVIDEND GOES ABOVE 5%. THE NAME OF THE COMPANY IS ROYAL GOLD, INC. ( RGLD ). AS THE PRICE CONTINUES TO BE WEAK, I INTEND TO ADD MORE STOCK TO MY 11,000 SHARES. HOPE TO HEAR FROM YOU ??? BILL

Leon November 19, 2016

if US bonds are being sold with huge volume then why is the dollar soaring ?

Gene November 19, 2016

Is it really possible to have a sustained gold rally if the gold market managers continually keep dumping paper gold. As I have researched more, it appears that Larry's projection for gold was pretty much spot on. The problem is that gold prices are so controlled artificially that if they want it could go to whatever price they desire. Case in point, 8000 tons of gold was dumped into the market shortly after the election which is equivalent to the entire US gold reserves. Is any gold stock safe to invest in with this kind of manipulation?

D Braatz November 21, 2016

Social, political and economic relations both in the U.S. and abroad have deteriated more over the last eight years than anyone could have expected, due to the lack of strong and meaningful leadership. So the world tirants have moved in to fill the void. As a result, very bad things will come out of nowhere. We need to step back and rethink everything. Start with a clean piece of paper.

Steven Matthews November 21, 2016

Gene, has a great point . Should we go back to the purchasing of gold ?