According to a recent report from the ratings agency Moody’s, some 26 percent of countries rated now have a “negative” sovereign debt outlook, up from 17 percent at the end of last year.
That’s also the worst sovereign credit outlook since 2012.
Moody’s has it right, but I think it’s conservative. I think sovereign debts are far worse than anyone would care to believe. After all, global economic growth is anemic and there is over $60 trillion in sovereign debts outstanding — and that’s just the debt that is “officially” acknowledged.
There’s also the unofficial sovereign debt, like the more than $170 trillion that the U.S. owes in the form of various IOUs to Social Security, Medicare, Veterans Affairs and an assortment of nebulous promises made that are well, nebulous, but nothingness promises.
Thing is, it’s all coming home to roost. Over $1.3 trillion in losses were incurred in government bonds in the days since Trump was elected. Our creditors figure that Trump’s proposed tax cuts are going to blow the debts out further … and/or they are worried about his isolationist policies and desire to renegotiate trade deals …
So they are selling like mad and recoiling from financing our country. Who can blame them? Would you finance Europe and its debts? I wouldn’t. Would you finance Japan and its debts, which equal 229% of GDP? I wouldn’t.
Would you finance the United States’ near $200 trillion of official and unofficial debts when you know it can never be repaid, and that the debts will likely just keep on growing …
Or President-elect Trump will simply come in and renegotiate the debt making you take a 50% or more haircut?
This is the sovereign debt crisis I’ve been warning you about. And according to my models, it’s just getting started. Trump is going to have his hands full.
My view: Don’t go anywhere near the bond markets, except triple-A corporates and even then, only if you have to.
Instead, buy blue-chip stocks on pullbacks … buy gold when I tell you to … and start preparing for a five-year roller coaster ride through hell.