One of the clearest ways to know when capital is starting to flee a country is to watch what happens when its bond yields rise.
Normally:
Yields ↑ → currency strengthens
Higher yields should attract capital.
But when you start seeing:
Bond yields ↑
Currency ↓
Equities ↓
something has changed.
The market is no longer interpreting higher yields as an opportunity.
It is interpreting them as risk.
Investors are demanding more yield to hold the debt while simultaneously selling the currency and domestic assets.
That is capital flight.
And here is where it becomes much more interesting:
What happens when this eventually happens to the reserve-currency country itself?
Capital cannot simply escape into another gigantic sovereign bond market without inheriting many of the same problems.
The escape route increasingly becomes scarce real assets:
Gold.
Silver.
Copper.
Energy.
Commodities.
Productive real assets.
In other words:
Capital stops asking, “Which paper asset should I own?”
and starts asking:
“What cannot be printed?”
Bookmark this.
You are going to hear this story again and again over the coming years.
@FirstSquawk Objectively speaking this $40 trillion debt has been accumulated over the years well before Trump. The naming of such economy is inaccurate and can be misleading.
@KingKong9888 if I am a central bank, would I prefer physical gold or paper gold based on “promise” or “understanding “? The answer should be pretty obvious.
EUROPEAN BANKS AND OTHER FINANCIAL COMPANIES ARE SET TO PAY OUT A RECORD €228 BILLION ($264.7 BILLION) THIS YEAR TO SHAREHOLDERS, ACCORDING TO BLOOMBERG INTELLIGENCE.