Take the madness in the bond world, for instance: Long-term bonds of a country with an out-of-control $2 trillion/year budget and carrying $15 trillion in outstanding bonds, which is larger than its total GDP, that is also suffering from a worrying trade deficit is currently yielding 1.6% below inflation.  In other words, year after year, investors are willing to pay $1.6 of their capital to hold depreciating assets.  On top of that, investors have been so keen on this miserable asset that in 2011 they bid up its price by no less than 26%.  The first conclusion to be drawn is that current markets are unhealthy and largely the product of Government manipulation.  They do that by printing money non-stop, and then use this money to go into the open market to buy up all bonds being offered as well as buy up all the newly offered bonds that were not bid for to make sure that we are never show a failed auction.

Western governments have been pumping money into the global economy since 2008 and running budget deficits larger than ever before in peacetime.  Meanwhile, the Chinese government has been engaging in a massive “stimulus” itself, but financing it through its own banking system, which holds over $3.5 trillion U.S. dollars along with almost every other nation’s bonds.

When you look at the degree at which current markets are so massively distorted, the right conclusion becomes clear: Treasury Bonds are in the world’s biggest bubble, inflated by massive money printing worldwide and the worsening financial troubles in Europe and America…

Since bond prices move inversely proportional to the level of interest rates, bond holders were paid additional interest in the form of capital gains on their bond holdings: But now that the Fed has pushed interest rates down to zero, these bond prices have no place to go but down and capital losses will replace the last few years of sure capital gains.

So while they have done well in 2011, they are likely to reverse sharply sometime in 2012.  Therefore, Treasury Bonds should be avoided at all costs.