The Media Has Missed This Major Warning Sign for the Markets

We Need to Pay Attention to This Little-Known Alarm Signal

There was news last week. The latest consumer-price inflation reading hit 8.6%—the highest rate in 40 years…but that’s not the news.

That’s the reason for the news.

The real news happened in an under-watched corner of Wall Street, in the excitingly named mortgage-backed securities market—what bond jockeys know simply as the MBS market.

I know this because I’m in Oman on a research tripand I woke up at 6 a.m. to a text from my son. It contained a link to a blog post written by a 40-year veteran of the MBS market.

Let me break down that post for you…

Mortgage-backed securities are bond-like investments that are made up of a bundle of mortgages. For this reason, they’re also called mortgage bonds.

The day that inflation printed 8.6%, the media missed a much-more significant tremor in the MBS arena: mortgage bonds went “no-bid.”

That means that no one was willing to offer up a bid to buy U.S. mortgage bonds. Like, literally no one. Not a single buyer anywhere in the world wanted to touch U.S. mortgage debt.

When buyers finally did emerge, they posted bids at penalty prices, meaning they had no interest in buying unless sellers were desperate to exit with a crew cut.

That’s problematic.

The last time this occurred during a normal trading day was in summer 2007, amid the risky sub-prime mortgage market. That was just before no-bid spread across the MBS market in 2008.

We all know what happened next. Boom went the U.S. housing market…and then the global economy.

This past January, the average rate on a 30-year mortgage was in the 3% range, according to Mortgage News Daily. By late May it had hit 5.25%—and historically a two-percentage point pop has been enough to suck the helium from the housing balloon.

Today?

In the few days since that 8.6% number emerged, the average 30-year fixed mortgage has leapt to 6.18% from 5.55%. More than half a percentage point in a couple days and 2x January’s level.

If you’ve ever wondered about that rotten smell in the state of Denmark, the dead canary in the U.S. mortgage-backed securities market is what Shakespeare was referring to.

I tell you all of this so that you have a deeper sense of what’s going in the shadows of high finance. No one seems to be paying any attention to this.

Granted, the recent “no-bid” drama was short-lived. So maybe that’s a sign all will be OK.

Or…

If “no-bid” is the dead canary in the coalmine…well we have some pending problems, economically speaking.

But, some good news here at the end: Past the summer, there is absolutely no way the Fed continues to raise interest rates into that environment. Doing so would very likely bring about a global depression.

So, I’m betting that later this year the Fed will likely have to cut interest rates and pour money into the economy to save the consumer, business, and the government. That will lead to a big spike in stock and crypto prices.

Of course, in the long term that move by the Fed will be bad news. It’s just adding more layers atop a shabbily constructed Jenga tower of bad economic decisions. But human nature is to save the day so that you can live to die in another battle.

That battle will come later this decade—around 2027 or 2028 is my guess. Just feels right for some reason.

So, my advice: Use this moment to prepare.

Gold is going to be your friend long term. The Swiss franc too. Look at overseas real estate in desirable locations like Cabo, the Riviera Maya, Portugal, Spain, and other parts of southern Europe (the Zoom Boom is real and people are going to want to live in nicer, cheaper places).

And I’m willing to wager that bitcoin, despite what’s going on right now in the crypto market, will be involved in fixing the terminally troubled U.S. dollar.

Remember this term: mortgage-backed securities.

You might be hearing about them again in the not too distant future.