Mish's Global Economic Trend Analysis

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Corporate and Government Bonds: Where to From Here? Posted: 15 Jul 2014 08:39 PM PDT Inquiring minds are concerned about corporate and government bonds,  especially bond funds. Is a debacle in bonds on the way? If so, how does one play the setup? That is what is on the mind of reader Kim who emailed: Hello Mish Everyone writes about the coming turmoil in the bond market as interest rates rise. Would you please write an article addressing this issue. How will this affect my 401k bond funds. One fund is corporate and the other is government bonds. Is one safer than the other. Will the rising rates destroy my bonds values? Will the SEC impose exit fees on retail investors. Just who is a retail investor. Also what do you think the odds are, that the IMF proposed freeze of retirement accounts, will be adopted. Who will authorize that action? Thanks, Kim Where to From Here? Hello Kim I suggest government bonds are likely the last to be affected in any major bond selloff. Look at it this way: In a flight to panic of any sort, government bonds are typically the safe haven. That is particularly important for bond funds as opposed to buying individual bonds and holding them to term. While no one has a crystal ball, I suggest the bloodbath will be in corporates first. Assuming that happens, reassess government bonds. As for the freeze in retirement accounts, forced ownership of government bonds, and other similar ideas, I suggest you ignore them. Exit corporate bond funds first, especially high yield. Junk bonds are in a massive bubble, as no-covenant agreements abound. The worry about US government bonds is, for the time, overblown. Personal Note Hello from Glacier National Park, Montana. Here is an unsharpened, not color corrected image of Liz and I at Virginia Falls. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Triple Whammy for German Economy Posted: 15 Jul 2014 08:22 AM PDT I have a guest post this morning from Saxo Bank chief economist Steen Jakobsen regarding the slowing German economy. Steen says the German economy is decelerating too quick for comfort and faces a triple whammy from Asian rebalancing, the US economy, and a bad energy policy. From Steen Jakobsen Germany May Have Won the World Cup, but Its Economy is Cooling Fast We need to congratulate Germany on its World Cup win. It was a victory for organisation and science, but unfortunately the Germany economy is slowing fast — and too fast for comfort when we look at Eurozone GDP. I have long argued this slowdown was coming based on Asia rebalancing (reducing imports of capital goods and turning more domestically-based); Bad energy policy (being dependent on Putin and his Russian gas rather than German nuclear energy — not exactly perfect substitution); A new minimum wage and a coalition government that has either reversed or halted a lot of the progress that had been made in the labour market. Unlike its football team, Germany became complacent and the switch to a reliance on green energy is now at risk as growth collapses. A few charts to illustrate my old argument ... ZEW Expectations Industrial Production Strategy This confirms that we are destined for new lows in yields in core Europe, something I have constantly said since Q4-2013. The world is barely producing growth with zero interest rates — how can ANYONE believe rates will go higher? Beats me! Therefore: Long IEF, Bund futures and 10-year US Treasury notes. Above courtesy of Steen Jakobsen Europe is not prepared for a German slowdown, but it is coming. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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