ABC – The Business
Traditionally, a rising stock market means an improving economy, while a rally in Government bonds means a worsening one. Which one to believe, and why?
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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
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Aaron Somner
:
Roger I also agree with Bill’s assesment that bonds are in a bubble and they are backed by governments who are insolvent. A study of the 1931 sovereign debt crisis will reveal exactly what happens when the sovereign bond market collapses. The main problem here is that nobody alive has seen a collapse in the bond market and we have never seen a worldwide bubble in bonds like we have today. Very few are willing to entertain this idea and even less have estimated what will happen when it does. It is reasonable to suggest that the weakest link in the bond market is the structure of the euro and the excessive debt levels of those nation states. But layered on top of that is the growing anti-euro sentiment amoungst both the citizenry and the political sphere. With the rise of politicians like Le penn in France, the liklihood of a referendum on EU membership amoungst more of the EU members is high. As we have seen with brexit the status quo is changing. The big problem is, the other countries are full members and share a common currency. What will their bonds then be denominated in? A knowledge of the 1931 sovereign debt crisis will assist in understanding that when one nation’s bonds are sold off in a panic it infects the whole sector in a contagion event. These nations cannot cope with interest rates above 6 or 7%. They are dead broke and their bonds are in a bubble. The negative yields are telling us that. Any doubt should be extinguished with a 30 year trend of bond prices.The common currency is the biggest flaw in the Eurozone structure. If the value of money is fixed then they effectively have a gold standard which have never lasted. They allways fail. Bretton woods prooved that. The Swiss prooved it again when the peg with the Euro failed in 2014. You cannot fix the value of money, it must float with everything else. This is why there is so much deflation in places like Greece. The value of their currency is the same as Germany’s. It is insane. It is within the EU where the trigger for the bond market supernova resides.
xiao fang xu
:
Sorry I need to ask you to clarify this:
If the value of money is fixed then they effectively have a gold standard which have never lasted
“a gold standard which have never lasted”
this is some history of money:
The solidus was introduced by Diocletian in ad 301….
The solidus was maintained essentially unaltered in weight, dimensions and purity until the 10th century. ( The 10th century is the period from 901 to 1000 in accordance with the Julian calendar )
https://en.wikipedia.org/wiki/Solidus_(coin)
From A.D. 500 to A.D. 1200, Byzantium was the wealthiest nation in Europe and western Asia. Its standard of living was unrivaled by other nations in Europe, and it led much of the world in art, science, trade, and architecture.
https://www.lewrockwell.com/2016/04/bionic-mosquito/centuries-byzantine-prosperity/
Historically, the only society that has maintained a gold coin standard for 1000 years was Byzantine society, from the fourth century until the 15th century. That was the longest period of monetary stability in the history of man. Eastern Rome was wealthier than Western Rome, and the most important single reason for this was the fact that Eastern Rome had a stable monetary order for 1000 years.
https://www.lewrockwell.com/2009/10/gary-north/precious-metal-coinage/
our pure fiat ( paper ) system is since 1971.
A basket of goods and services valued at $ 1000 in year 1984 , would in year 2015 cost $ 2,929.93
Reset Calculate
Total change in cost is 193.0 per cent, over 31 years, at an average annual inflation rate of 3.5 per cent.
w.rba.gov.au/calculator/annualDecimal.html
Roger Montgomery
:
Sounds like different definitions of “lasted” being employed here.
xiao fang xu
:
Marc Faber: The question should be, “Which central bank is the most insane?” Because you understand, the central banks have been manipulating just about everything.
in Japan, they announce it, the central bank, the Bank of Japan, is buying shares through ETFs.
So there’s a gigantic manipulation and you and I, as an investor, we just don’t know how far these insane people will go with the manipulation of markets.
S&P/ASX 200 in year 2000 was around 3000 level and gold in australian dollars was around 450.
today in 2016, S&P/ASX 200 is around 5500 and gold is around $1700.
in america S&P 500 index was 1527 and gold was around $300
today S&P 500 index is 2173 and gold is $1300