U.S. Bond Market Fall—Effects will be felt WORLD WIDE

Last week, the U.S. bond market fell substantially and yields rose as investors finally began to see the obvious: Quantitative Easing (the purchase of U.S. Treasury bonds by the Federal Reserve) and its potential inflationary pressures are weakening the U.S. dollar.

As most economists will tell you, the U.S. economy is in a depression. Statistically speaking, most depressions are deflationary and therefore accompanied by a fall in interest rates. However, the bond market’s recent behavior provides evidence that the current depression is not deflationary. On the contrary, inflationary pressures are building and interest rates are rising. Bond investors, looking ahead and seeing a light, are realizing that it is the headlight of an oncoming train…and this oncoming train is the trillions of dollars of U.S. bonds which must be floated by the Federal Reserve in the next few years. The consequences of this flotation will include a weakening of the dollar and an increase in interest rates. Investors are finally awakening to this trend which we believe will continue for some time.

Certainly, the last two weeks have rewarded our long held global investment strategies. In our view, this is not the end, but rather the beginning of the decline in the U.S. dollar…and the rise in many other investment areas. Accordingly, we continue to believe that the wise investor will not hold U.S. dollars, but rather invest their portfolio in oil shares, gold shares, better-managed non U.S. currencies, and stocks in countries where corporate profits will grow rapidly, such as China, India, and Brazil and selected other countries.

For several years, our commentary has brought attention to the looming deficits and the questionable methods of financing them that have become so prevalent. The current situation of the U.S. economy thus comes as no surprise to our readers. [Please see our archived commentaries at www.guildinvestment.com for more details]. What may be a surprise to our readers is how long the U.S. dollar will decline, and how high many alternative areas of investment, including the areas mentioned above, will rise.
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