At some point confidence will be lost, and international investors won't want to own US Treasury bonds. I mean for how much longer, when the inflation rate has been (for the last 15 years), and continues to be, at least 2.5%, would any sane investor want to own a five-year bond that's going to pay less than a 1% return on his investment?!
So, if the central banks of the world ever stop buying, or actually even begin to reduce their totally bloated, abnormal, freakishly large balance sheets, all of these speculators are going to sell their bonds in a heartbeat.
Indeed that's what has already happened in Greece.
So here's the heart of the matter. The Fed is a patsy. It is a pathetic dependent of the big Wall Street banks, traders and hedge funds. Everything it does is designed to keep this rickety structure-of-their-making from unwinding. If you had a former Fed Chairman Paul Volcker running the Fed today -- utterly fearless and independent and willing to scare the hell out of the market on any given day of the week -- you wouldn't have half, you wouldn't have 95%, of the speculative activity that we are seeing today.
The bald but largely unrealized fact is that we're facing a financial crisis far worse than the one that followed the collapse of Lehman Bros. in 2008. When the real margin call, in the not-too-far-distant-future, finally arrives, the carnage will be unimaginable.
So how can investors protect themselves? In the stock market? Are you kidding me? Personally, I wouldn't touch the stock market with a 100-foot pole.
Some investors argue that the stock market is trading cheap by some measures. It's valued at 12.5 times expected earnings this year, while the typical multiple is 15 times. But the typical multiple is based on a historic period when the economy could grow at a standard rate. Therefore the idea that you can capitalize this market at a rate that was safe to capitalize it in 1990 or 1970 or 1955 is a huge mistake. It's part of a Wall Street sales pitch.
Capital preservation is what your first, second and third priorities ought to be, in any system that is so jury-rigged, so fragile, so exposed to major breakdown that it's not worth what you think you might be able to earn over six months or two years or three years if they can keep the bailing wire and bubble gum holding the system together, OK? Buying stocks or bonds right now is simply not worth the risk.