By Graham Summers, MBA | Chief Market Strategist
A very strange thing is happening in the markets.
Historically, when the stock market collapses, money flees stocks and floods into U.S. Treasuries. The reason for this is that Treasuries are considered a safe haven due to the fact that no matter what, the U.S. Government can always print money to pay back its lenders.
As a result of this, typically when stocks break down, bonds rally. In this sense, Treasuries are a market hedge, or at least act as a cushion against stock market losses.
Here’s where things get strange. During this latest stock market collapse bonds is NOT rallying. Instead, bonds are selling off along with stocks!
Below is a chart of the S&P 500 (top box) and the 30 Year U.S. Treasury (bottom box). As you can see, bonds are collapsing at the same time as stocks. This makes no sense and runs contrary to one of the most basic rules of modern portfolio theory.
What is going on here?
China is one of the largest owners of U.S. debt. All told the People’s Republic of China (PBOC) owns about $750 billion in Treasuries. And by the look of things, China is starting to dump these bonds as part of the trade war.
Why would China do this?
Believe it or not, China’s economy is nowhere near as strong as the media claims. Youth unemployment is so bad that the country simply stopped publishing the data. The country’s policy of simply building things, demolishing them, and then building them again to maintain a high rate of GDP growth is no longer working (building then demolishing infrastructure doesn’t generate revenues or real growth).
Indeed, things are so bad that foreign investors are no longer plowing money into China’s economy: in 2023, foreign direct investment in China declined for the first time in 25 years!
Heck, even the Chinese stock market has gone nowhere for 20 years. This is NOT a sign of sustainable growth!
Put simply, China’s financial system is in VERY serious trouble. And they are in desperate need of capital which is why it is highly likely they are beginning to dump their Treasury holdings, forcing Treasury bonds to collapse alongside stocks.
If this doesn’t improve soon, we could soon see an international crisis as China’s financial system breaks down in a major way. Which means…
This crisis/ bear market is NOWHERE near over.
Put simply, all of the above items are MAJOR warnings that a crisis is about to hit. This is no longer about tariffs… the Everything Bubble is bursting right before our eyes.
If you’ve yet to prepare for this, the time to act is NOW before the bear market hits.
Indeed, our proprietary Crash Trigger is now on red alert. This trigger went off before the 1987 Crash, the Tech Crash, and the 2008 Great Financial Crisis.
We detail this trigger, how it works, and what it’s saying about the market today in a Special Investment Report titled How to Predict a Crash.
Normally this report is only available to our paying clients, but in light of what’s happening in the markets today, we are making just 99 copies available to the general public.
To pick up one of the remaining copies…
Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research
