BOND BEAR MARKET to Spill Over into Stocks: David Collum Sees the Red Flags

Interest rate normalization and an unwinding of the U.S. Federal Reserve’s easy money policy are potentially grinding the 38-year bond bull market to a halt. The implications of this are far-reaching, with possibly disastrous consequences for equities as well as for the global economy at large.

Helping Crush the Street tackle the all-important bond market issue is David Collum of PeakProsperity.com, a website designed to help you stay informed, protect your wealth, build resilience into your life and community, and connect with other like-minded individuals.

David Collum is the Betty R. Miller Professor of Chemistry at Cornell University and is a regular and valued presence on the Internet, commenting on the financial system and the predicaments of our time. A respected and prolific voice in the alternative media, David has contributed numerous articles and podcasts to the Peak Prosperity community.

Due to growing economic instability, peak oil and resource scarcity, Peak Prosperity predicts that the next twenty years are going to look very different from the past. But they see a positive – even prosperous – future for those who take prudent action today.

Courtesy: David Collum

Speaking with Mr. Collum, Crush the Street inquired about the implications of a bond market collapse and what that might look like for the American and global economies. According to David Collum, an argument can indeed be made that the bond bull market has ended – and that most investors make a fundamental mistake in regard to interest rates.

The word on the street, according to David Collum, is that low interest rates are good for stocks; the truth, however, is that dropping rates are good for stocks. As fixed-income yield drops, the market can bid up equities more and more because there’s less of a competitor.

Once rates reach the bottom, there are no more net gains to be had from dropping bond interest rates, according to David Collum. In other words (to paraphrase Warren Buffett), dropping interest rates create equity bull markets, and rising interest rates create equity bear markets – and the rest is basically just noise.

Courtesy: Crush the Street, David Collum

What does this mean for the markets? According to David Collum, if we are in fact at the bottom of a 38-year bull market in bonds (i.e., a 38-year bear market in Treasury yields) and starting in the opposite direction, that would indeed be ominous for the global equities markets.

And it is undoubtedly the case that the bull market in stocks will come to an end, according to David Collum. In the last ten years, we’ve witnessed hundreds of percentage points of gains in equities that were riding on the back of 2.1 or 2.2 percent gains in GDP – an absolutely unsustainable situation.

Bearing all of this in mind, in Mr. Collum’s view, it’s not looking good for equities investors going forward: given that U.S. stocks are at record-breaking valuations, which will at some point regress to the mean, we’ll be looking at negative stock market returns for quite a while.

It was absolutely enlightening to speak with David Collum, and we highly recommend that you view the full interview with Crush the Street to get the complete picture on what’s going on in the U.S. and global economy today. You’re also invited to visit PeakProsperity.com to access more of Mr. David Collum’s essential insights and commentary.

To better prepare yourself for what lies ahead in the markets and economy, you’ll definitely want to get your copy of Crush the Street’s latest financial reports; these include our report on the three top steps you can take to protect yourself from the death of King Dollar, our complete guide to gold and silver investing, as well as over a half-dozen of Crush the Street’s exclusive reports on dividend riches available from this page.