A global debt crisis threatens to trigger a stock market crash in 2019, and too many people are unaware.
Worldwide debt has increased twofold over just the past 15 years, an increase of nearly $15 trillion.
This figure represents an amount equal to a staggering 318% of gross domestic product globally.
Imagine your household borrowing to the tune of three times your annual paycheck. Your lenders would not be pleased.
By the end of November, the United States alone owed $21.79 trillion, and the interest by itself is projected to grow by $310 billion annually if nothing happens to slow the damage.
And when anyone is drowning in debt, someone has to pay – and that is going to end up being you, the taxpaying public.
But it could be even worse…
How Global Debt Could Lead to a Stock Market Crash in 2019
There’s no easy way out of this debt crisis.
According to the latest World Economic Outlook report issued by the International Monetary Fund (IMF), the future could be bleak.
After countries printed money and slashed interest rates to combat the 2008 financial crisis, there could be limited resources available in the future to address another economic crisis.
We’re already seeing warning signs in the bond markets.
In September of this year, the 10-year Treasury benchmark rate jumped from 2.06% to 3.06%, a 50% increase over the previous 14 months.
Remember, as interest rates continue to climb, the dollar value of notes and bonds will drop. The Bloomberg Barclays Multiverse Index reports that, over just a three-week period between September and October of this year, $1 trillion in bond values were erased.
While we’re not predicting the next market crash just yet, it’s important for every investor to have a plan in place for when it happens.
After all, prepared investors could bank a steady profit during a downturn…
Here’s How You Can Profit When Interest Rates Go Up
There is always more than one way to play a market. If bondholders are losing money, it makes sense that the people who are making money are those who sold bonds short.
Short selling isn’t for everyone, but there are ways to accomplish the same ends without having to tolerate the risk of shorting a bond. You can do this with exchange-traded notes (ETNs).
According to Krauth, investors can profit from a panic associated with rising interest rates by owning an ETN that will appreciate as the prices of bonds go down.
Krauth also recommends that you make an investment like this a small portion of your overall investment strategy. Even though it to doesn’t come with the infinite risk associated with short-selling, it is still a speculative, risky play.
If you want to profit from falling bond prices, he recommends that investors choose the iPath U.S. Treasury 10-year Bear ETN (NASDAQ: DTYS), which is going to move inversely from the price of the 10-year Treasury.
This ETN moves with the 10-year yield and does a great job correlating, with its gains doubling over the previous 27 months. This is likely just the beginning for this ETN.
Don’t forget that interest rates have just begun to increase, and global debt is completely out of control.
With the outrageous amount of debt outstanding, it isn’t very likely that it is going to be repaid. This is terrible news for bond values but will prove profitable for the Bear ETN.
It’s investments like this one that could provide valuable hedges against a looming financial disaster.
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Source: Money Morning