Image Source: Pixabay

The most important market in the world is signaling that inflation is returning to the financial system.

The financial media (and most investors) like to focus on stocks because they are a volatile asset class and this volatility potentially translates to making a LOT of money quickly. However, the reality is that the stock market is in fact one of the smallest, most junior markets in the world.

The global stock market is about $80 trillion in size. By way of comparison, the debt/ bond market is over $300 trillion in size. And while stocks are a junior asset class, bonds, particularly sovereign/ government bonds are THE bedrock of the current financial system. Indeed, the yields on these bonds represent the “risk free” rate of return against which all risk assets (including stocks) are valued.

Put simply, BONDs, not stocks, are THE asset class to watch for clues as to what is coming down the pike. And the bond market is signaling that inflation is coming.

The yield on the 10-Year Japanese Government bond is going parabolic. Japan is the grandfather for monetary policy insanity having first introduced insane policies like Zero Interest Rate Policy (ZIRP) and Quantitative Easing (QE) a decade before the Fed or anyone else. So, it makes sense that Japan is the first country to lose control of its bond market.

Japan is not alone. The yield on Germany’s 10-year Government Bond is also turning up signaling that inflation is returning to that financial system as well. This is deeply concerning because the European Central Bank is in fact cutting rates… and the yield is going UP instead of down (the ECB is easing into another inflationary storm).

Which brings us to the U.S. and the Fed.

The Fed has already cut rates twice this year. And the yield on the 10-Year U.S. Treasury is refusing to break down. If anything, it’s coiling in a triangle formation, preparing for a violent breakout. Given what is happening in Japan and Germany, the odds are that this breakout will be UP… meaning bonds are breaking down again.

Put simply, THE most important market in the world (bonds) is signaling inflation is returning to the financial system. And those investors who are correctly positioned for this could generate life-changing returns.

More By This Author:

The Trump Fed Will Ignite A Melt Up
Central Banks Cannot Create Jobs Or Growth
2026 Will Be The Year Of Hard Assets