Last week, I provided you with a detailed E-Wave cycle roadmap for key trends in gold, silver and mining shares during 2018. In this issue, I’ll give you my 2018 cycle forecasts for bonds, crude oil and energy stocks.
First, bond investors are about to ride a roller-coaster of wild price swings in fixed income markets during the New Year – Treasuries and corporate bonds alike – first up, then down hard.
30-year U.S. Treasury bond prices peaked in mid-2016 when yields bottomed at a paltry 2.1%, basis for the 30-year bond. Now ask yourself, who in their right mind would lend money to Uncle Sam for THIRTY long years in exchange for 2% per year? Not me.
Sure enough, between the peak in July 2016 and last December, the 30-year bond lost $224,558 in principal value (based on $1,000,000 face value bond) and its yield jumped from 2.1% to 3.16% – in a span of just five months.
That was the worst plunge in government bond prices I can remember in more than 25 years in this business … and guess what? It was just the opening act.
In fact, 2016 was the beginning of the end to the great bond bull market that began in the 1980s when 30-year yields peaked above 15%. From 2% today, yields have nowhere to go but back up.
But as you can see in the cycle chart above, Treasury bonds will have one last hurrah into year-end before rolling over again to the downside, as yields spike higher.
Expect faster than expected economic growth, and with it accelerating inflation, to provide the catalyst to the downside for bond prices.
My advice is the same as Larry Edelson delivered to you over a year ago: “Steer 100 percent clear of any sovereign debt of a maturity greater than one year.”
The collapse of government debt markets worldwide will ultimately destroy government pensions and benefit programs … it will devastate the global financial system … and finally it will bankrupt governments and central banks … wiping out trillions of dollars of wealth in the process.
This may sound like an alarmist forecast, but I’m dead-serious when I say this: Shorting U.S. Treasuries, and the sovereign debt of other nations like Europe and Japan, should be one of the most lucrative investment opportunities over the next decade, second only to owning precious metals.
Use any and every rally in Treasuries to go short bonds!
Energy sector volatility means big profit potential …
Talk about a roller-coaster ride in 2017! Crude oil plunged in the first half of the year, before bottoming at mid-year, and then soaring in the back-half of 2017.
So, what’s next? Expect the wild ride to continue, according to the cycle forecast …
At year-end 2017, crude has rallied smack into resistance at just under $60 a barrel.
True, supply/demand fundamentals are turning more bullish for oil. This will continue to be true in 2018, but not enough to support $60 … not just yet.
Expect oil to experience a sharp decline into February, but then expect a rebound rally between February and March.
Another pullback in oil prices during April should set the stage for the roller-coaster to climb higher once again, with a more sizeable rally for crude into mid-year.
But the real profit potential should come from energy stocks, as you can see in the cycle forecast chart above for the leading energy sector ETF.
Just like precious metals stocks, energy sector shares represent a leveraged bet on the price of oil and gas. Even a small rally in oil prices can lead to magnified gains in energy stocks.
And with the energy sector so undervalued today, it’s a cinch that the next big move up in oil and gas will be magnified on the upside for energy stocks!
Plan to buy energy stocks on any dips around mid-January 2018.
Good investing and Happy Holidays,
Mike
