A Warning About Bonds

I subscribe to several newsletters including from Harry Dent, author of The Demographic Cliff. Here’s a small part of what Harry sent me this afternoon. This is my third post warning about bonds.  - Chris Everett

Dent Research Newsletter
by Harry Dent

Earlier this year, I sat down to write my first book since 2014’s The Demographic Cliff. Demographics have been my secret weapon since I discovered their importance back in 1988. They reveal exactly why the economy expands and contracts with the spending patterns of generations, and how such generations also create inflation and deflation.  Sorry Milton Friedman, it’s not simply a monetary phenomenon!  

In that book, I showed how the accelerating retirement of baby boomers would trigger a staggering “demographic cliff” that sends the global economy into a tailspin, starting with Japan in 1989.  In this follow-up book, I wanted to shed light on the phenomenon that economists, politicians, pundits, and investors alike cannot seem to wrap their heads around.


I know a thing or two about bubbles. I’ve spent my life studying them, and they’re a natural segue from demographics. The rising spending power of the baby boomers created the greatest economic expansion in modern history. From its sheer size and with the help of immigration, it was destined to be a bubble generation, creating booms and busts in the financial markets – bubbles and bubble bursts.

This was probably the easiest book I’ve ever had to write. And I had no shortage of inspiration to pull from, as bubbles are literally everywhere today in this era of central-bank stimulus! I knocked out the first draft in a couple of weeks back in May. And now, finally, my new book The Sale of a Lifetime comes out this Thursday – you can find it on Amazon. 

Here’s what you can expect from this new book. 

The Sale of a Lifetime is Coming

I’ve written extensively about my 80-Year Four Season Economic Cycle. The economy phases through four seasons based on periods of inflation and deflation. Consumer prices and inflation rise into spring and summer… and fall into autumn and winter.

Meanwhile, generational spending rises in the spring and fall seasons… and drops off in the summer and winter seasons, creating recessionary and even depressionary crises. These oscillate between the deflationary crisis in winter (think the Great Depression), and the inflationary crisis in fall when the economy overheats (the 1970s, 40 years later).  I’ve further developed this model to show correlating rises and falls in income inequality, and how that effects the presidential cycle along with it.

Simply put, we are already deep into the winter season, which started in 2008 – right on cue as we experienced the worst financial crisis of many of our lifetimes – and doesn’t end until roughly late 2022. But central banks keep hijacking the economy’s natural cycle, pushing off the worst of the deflationary meltdown with trillions in artificially printed money. In other words – central banks never allowed the global financial crisis to play out and do its work to deleverage debt and financial bubbles! They just keep delaying the inevitable.

That’s why, when this crisis hits, it’ll be worse than if we had just ridden out the bad times like the economy demanded of us. And it will be the single-most devastating financial calamity for those who aren’t prepared.  That’s the bad news.

The good news – and where I get the title of my book The Sale of a Lifetime – is that it will also create the absolute best opportunity to grow new wealth in 87 years. Financial assets, after getting creamed with a flailing economy, will suddenly be available at fire-sale prices.

It will literally be the sale – and opportunity – of a lifetime. The last time this happened, you could have bought any real estate or stock business – hell, even roach droppings – and made massive profits for decades to come.  I believe that opportunity is fast approaching… which is why now could not be a better time to release my latest book. 

The Warning Signs Are Already Flashing

Friday hurt. The Dow was off near 400 points in the worst one-day mini-crash since the Brexit fiasco nearly three months ago.  Volatility has been almost virtually absent as the bulls made a run for 2,200 on the S&P 500 – which, by the way, they fell short of.  It turns out the sale of a lifetime could be coming sooner than many expect. 

The Stars Are Aligning on One of My Most Controversial Claims

In fact, one of my most controversial claims of late has been that bonds are way overbought. They’re well overdue for a pullback, meaning yields could spike in the months leading up to another financial catastrophe.  Make no mistake – bonds are in a bubble. They’re one of the bubbliest bubbles there is, fueled by the free lunch put on offer by the world’s central banks. They’ve more or less made bonds a risk-free trade by cutting interest rates to zero and even negative, pressuring yields lower across the entire bond industry and sending bond prices into the stratosphere.

Seriously, how many more buyers could there be when sovereign bond yields across the world are turning negative? ….. Japan is running out of safes. The Japanese are so bewildered by the idea of paying the bank to hold their money that they’ve started moving their savings into their homes. Who can blame them! And the same thing is happening in Germany. With inflation in Europe at 0.2% – just a sliver away from deflation – and interest rates at -0.40%, people are afraid that the only safe bet is to hoard their cash! 

They’re right – cash is king in a depression.

The fact remains that bonds are just begging for a serious correction

Now let me be clear. Bond yields can always go lower, and I think eventually they will. But in the intermediate-term, bond prices are due for a pullback. Hedge funds will likely be forced to make margin calls on these leveraged trades – which is the same thing that happened in the great oil meltdown in 2008 that we also predicted.  Coming off levels as recently low as 1.34%, I think the 10-Year U.S. Treasury yield could spike to as high as 3.0% to 3.2% in the next six to nine months.

Eventually, I think the Treasury yield could crash to as low as 0%. We’ve seen crazier things happen in this era of ultra-low interest rates, so it’s not out of the realm of possibility! A serious round of deflation could see people turn to sovereign bonds like in 1931 to 1941 as the only safe place to store their cash. Or for some – their safes!

- Harry Dent