Business

Investors today are focusing on the wrong asset class.

Stocks started off the year with one of the worst drops in recent memory. As of this morning the S&P 500 was down over 7% for the year thus far.

However, while stocks grab the headlines, it is the bond market that warrants the most attention.

The reason?

Firstly, size. The bond bubble is $100 trillion in size. To put this into perspective, the Tech Bubble, the single largest stock bubble in history relative to profits, was just $16 trillion in size.

Three weeks ago we wondered when Moody's would finally get the Freeport McMoRan joke when, with its stock crashing to unseen lows, it would finally cut investment-grade rated FCX (Baa3) to its rightful place deep in junk territory:

As we noted then "the US copper and gold producer has seen its 5-yr CDS spread trading at implied junk levels for the last six months. Troubles have intensified over the past month and credit spreads now imply a 79% chance of default within the next five years."

Following the post-regulatory-change spike in existing and new home sales, pending home sales disappointed with a mere 0.1% rise MoM (missing expectations of a 0.9% rise). The weakness of the forward-looking indicator of home closings was blamed - as usual - on low inventories but also on "sizable losses in the stock market." The 3.1% YoY sales increase is close to the weakest since November 2014.

Not what New and existing home sales suggest (but more like homebuilder sentiment)

Headlines about "oil production cuts" are the new "Greece is saved" trial balloon.

Following today's dizzying surge in crude oil on speculation by the Russian energy minister that the Saudis have proposed a 5% supply cut, which was subsequently trimmed to merely a statement that a "meeting may be called where a production cut could be discussed" we asked how long until the denial:

What time is the Saudi denial?

— zerohedge (@zerohedge) January 28, 2016

We have consistently been making the contrarian call for a falling silver price and a rising gold to silver ratio for years. This ratio has risen a lot during this time. So are we ready to change our call yet?

Review of Our Call in 2015