A major collapse in Treasury bond yields… are we headed for negative interest rates?… a market approach engineered for income in a no-income market
Treasury yields are imploding.
On Tuesday, the 10-Year Treasury yield fell to its lowest level since February. The note dropped to 1.35%, its lowest level since Feb. 24.
The slide continued yesterday, with the 10-Year yield falling to 1.3%.
As I write Thursday morning, yields are tumbling again, with the 10-Year Treasury yield falling as low as 1.25% on the day. As I write late morning, it’s sitting at 1.27%.
For perspective, it was on March 30 that the 10-year yield surged as high as 1.77% when investors reacted to fears of an aggressive response from the Fed due to rising inflation.
This means the 10-Year yield has lost nearly 30% in a little over three months.
What’s going on?
More importantly, what does this mean for your stock portfolio? And what does it reveal about how traders are assessing the threat of inflation?
Legendary investor, Louis Navellier, dug into these questions in his Flash Alert podcast for Accelerated Profits subscribers earlier this week. Louis sends podcasts during fast moving market conditions so his subscribers can understand what’s going on.
Today, let’s listen in to see exactly what’s going on – and what it means for your money.
When we’re done, we’ll highlight a powerful income approach to the markets that Louis is taking today. As yields continue to fall, this could be more important than ever to investors nearing retirement…or income-starved investors at any stage in life.
Let’s jump in.
***What is going on with crashing Treasury yields?
For newer Digest readers, Louis is a market legend. Over the decades, he has developed a high-tech trading system guided by preset algorithms – basically, step-by-step computer instructions. It’s this use of predictive algorithms that led Forbes to name him the “King of Quants.”
Given the emphasis on numbers and quantifiable data, it’s no wonder that Louis is closely watching what’s happening with Treasury yields.
From his update:
The big news…by far…are Treasury bond yields.
They cracked the 1.4% barrier (Tuesday) on the 10-Year Treasury. They are plunging.
So, you probably are wondering “why are Treasury bond yields falling when inflation heats up?” What in the world is going on?
In answering that, Louis points toward two working theories.
The first is that there’s heavy demand for corporate bonds today. Meanwhile, the spread between corporate bond yields and Treasury bonds yields is at an all-time low.
Given this tight spread, the demand for corporate bonds might be bleeding over to Treasury bonds, pushing up prices (which drives down bond yields).
The second theory is that we’re going to see negative interest rates come to America. So, everyone is clamoring to lock in some yield today while rates are still positive.
***Louis believes this second theory – fear of negative rates – is more of a danger than it first might seem
Back to Louis:
Europe pioneered something called Modern Monetary Theory. What that means is they can print all the money they want. But that’s what caused negative rates.
We’re doing the same thing.
We have a $30 trillion budget deficit. The interest on the debt is more than the entire defense department. We will not be able to pay that debt off easily.
So, we are going down the Modern Monetary Theory route, and it will cause our interest rates to collapse eventually, and there is a panic.
Before moving on, let’s make sure we’re all on the same page…
Modern Monetary Theory (MMT) is an economic theory suggesting that countries issuing their own currencies can never “run out of money.”
In short, the theory goes that governments can print and spend as much as they want, since they can always create more money in their domestic currency to pay off debts (with the caveat that this creation of new currency needs to be matched by a country’s economic resources).
If this sounds a bit dangerous to you, you’re not alone. Traditional supply/demand economics suggest there will be a price to pay for this type of wanton currency printing.
Back to Louis, describing how we’re already seeing abnormalities in the U.S. system:
Right now, junk bond yields are coming in at less than the inflation rate – for the first time ever.
Furthermore, all the Treasury yields, based on the TIPS (Treasury Inflation-Protected Securities) are negative. We already have negative yields in TIPS.
So, (negative rates) are coming.
Sounds like lots of bad news, right?
Well, yes and no.
***What crashing yields could mean for your portfolio
A government that prints currency at will is setting us on a course for financial pain…eventually.
And negative-yielding interest rates will be brutal for savers…eventually.
But what’s just ahead investors, based on these dynamics, is actually…a surging stock market – despite today’s selloff.
(Side note: in another Flash Update this morning, Louis attributed today’s selloff to the news that the European Central Bank announced it will tolerate 2% annual inflation over the medium term. In doing this, it’s ignoring its previous inflation target which was under 2%. Louis calls this the first major policy shift in two decades.)
Back to Louis discussing the dropping yields and U.S. stocks:
This is very bullish for stocks.
The truth of the matter is it’s hard to get yield out of bonds right now cause they keep breaking to record lows. So, more money is going to go to stocks. It’s as simple as that.
Oh, and guess what? The stock market yields more now, and it’s still tax-advantaged. They haven’t changed the tax laws.
The bottom line is the money supply has exploded. That money supply is sloshing around.
It’s buying financial assets like stocks and bonds. It’s buying real estate. And as long as the money supply is up, we’re going to have a lot of exciting asset appreciation.
Louis briefly touches on additional tailwinds for stocks – namely, the accommodative Federal Reserve policy that wants to keep the party going, as well as what’s going to be an incredibly-strong second-quarter earnings season beginning next week.
Put it all together, and Louis believes fundamentally strong stocks are about to surge.
Here he is with his sum-up:
What happened to the 10-Year Treasury is unbelievably bullish. It cracked 1.4% decisively. I cannot tell you how bullish that is for stocks long-term…
As far as I’m concerned, it’s lock-and-load time. Let’s go buy the best growth stocks with the best sales and earnings.
Now, on the topic of “best growth stocks”, let’s pivot to the specific type of stock that’s on Louis’ radar right now.
***Using growth stocks to generate huge income
Over the last several days, Louis has been sharing a special series with subscribers called Your Accelerated Income Guide.
It zeroes in on why he developed The Accelerated Income Project2021, which was the focal point of a special, live event he held last Wednesday.
In short, so many investors have spent years getting lousy market returns. Now, they’re financially-behind, and need a catch-up strategy.
So, what has Louis done with his project that addresses this need?
Well, let’s back up…
If you’re a regular Digest reader, you know that fundamental strength is at the heart of Louis’ approach.
He looks for quantifiable evidence that a company is performing at the top level – strong earnings growth, accelerating margin expansion, and an outsized number of analyst earnings revisions, as just a few examples of what he monitors.
But even if a company checks all the “fundamental strength” boxes, it’s not an automatic buy if the price-tag is too high. As we’ve noted plenty here in the Digest, a great company isn’t a great investment if you overpay.
That’s why Louis’ system targets great companies that are offering unexpected bargain prices. This helps creates the conditions for outsized returns – and fast.
Back to Louis:
I look for buys when a stock has become a bargain. And I don’t just mean “cheap”; I mean a good value.
In other words, look for a company that’s still growing like crazy – in terms of sales, operating margins, and especially earnings. Whenever its stock experiences a sell-off… then that’s a great opportunity. And those fundamental factors are exactly what I’ve designed my system to detect.
But, again, you only want the highest-quality companies.
In total, there’s eight factors to look for. Apply them to the fastest-moving stocks around, and that’s the basis for my newest endeavor, The Accelerated Income Project 2021.
As an example of the type of stock that fits this system, we could point toward ARM Holdings.
Louis explains how this stock was going nowhere for several years. During that time, the company showed six of the eight indicators for The Accelerated Income Project 2021.
Then one March, things changed.
Back to Louis:
ARM registered all eight indicators…and shortly after, the company’s stock took off.
Shares jumped 182% over the next 11 months! This would’ve handed folks the chance for $9,100 in extra cash for every $5,000 invested.
As another example, there was a Chinese e-commerce company called Baozun (BZUN).
Back in early 2017, Louis’ system registered green-lights on all eight indicators, which prompted Louis to give BZUN “buy” status.
By June of that year, the stock had climbed 38%. By August, 132%.
We’re running long, so let’s wrap up…
Despite the eventual price to pay for massive currency creation and our government’s flirtation with MMT, the shorter-term result is a climbing stock market. Louis is incredibly bullish, even with today’s selloff.
Meanwhile, if you’re interested in a market approach that’s engineered to make up for lost time (and disappointing returns), click here for more on Louis’ Accelerated Income Project 2021.
Back to Louis:
I’ve adjusted my proven investing analysis to focus on the stocks that are set to soar … like coiled springs … in just a short time period.
You won’t have to wait years for double- and even triple-digit returns with my Accelerated Income Project 2021.
I’ve designed it so you can get the income you need on a regular basis … and all without using risky options or any other “trick” investing.
I’ll add that Louis just released a new recommendation yesterday, plus there will be at least one more by next Wednesday.
In the meantime, keep your eye on Treasury yields. These are fascinating times.
Have a good evening,
Jeff Remsburg
