THERE IS NOW A 100% CHANCE OF A MARKET COLLAPSE
Investmentwatchblog.com
May 21st, 2013
Porter Stansberry: There is now a 100% chance of a market collapse
…Historically, looking at the two commodities, the average multiple of gas to oil was about 10x. That is, a barrel of oil was, on average, 10 times more expensive than one thousand cubic feet of gas. By last April, that premium had reached an all-time high of 55 times.
There was no way that kind of price relationship could have lasted. A reversion to the mean was 100% certain. And that’s what happened. Today, with West Texas Intermediate crude oil at $95 per barrel and natural gas at around $4, the ratio is still wide, at almost 24 times. But it’s half as wide as last year. You should expect oil prices to continue to decline and gas prices to continue to rise. I believe the future 10x equilibrium will be reached when gas is around $6 and oil is around $60.
Now… let me give you another “outlandish” prediction. The U.S. bond market – particularly junk bonds – is going to crash. When this crash occurs, it will be the largest destruction of wealth in history. There has never been a bigger bubble in U.S. bonds.
How do I know? It’s simple. Junk bonds (aka high-yield bonds issued by less creditworthy companies) have never yielded less than 5% annually. But they do today. Likewise, the difference between the yields on junk bonds and the yields on investment-grade bonds has almost never been smaller. That means credit is more available today than almost ever before for small, less-than-investment-grade firms. The last time credit was this widely available – and at such low costs – was in 2007. And you know how that turned out…
The Rest…HERE
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