LONDON, ENGLAND – I read this week that a company called Centene borrowed money at 2.45% for seven years.

This story made the news because Centene is a “junk” rated borrower… And 2.45% is the lowest yield ever achieved by a junk-rated borrower on a seven-year (or longer) loan.

More below…

Sightseeing in London

Greetings from London, my hometown…

We’re trying to visit as many historic and educational places as we can before London gets overrun by tourists again.

Today, we visited St. Paul’s Cathedral, another one of London’s top tourist attractions. It’s a functioning church. We attended the Evensong service and listened to the choir.

Here we are looking at St. Paul’s from the opposite bank of the River Thames…


The view of St. Paul’s Cathedral from across the Thames

The original St. Paul’s Cathedral was built here by the Anglo-Saxons in the fifth century. But it burned down in the Great Fire of London of 1666.

Britain’s most famous architect, Sir Christopher Wren, rebuilt it over the next 50 years. Upon its completion, it was the tallest building in London and remained so for the next 250 years…

Here we are approaching St. Paul’s on the Millennium Footbridge over the river…


Approaching St. Paul’s on the Millennium Footbridge

Prince Charles and Princess Diana were married here. They had the funerals for Winston Churchill, Margaret Thatcher, Admiral Nelson, and the Duke of Wellington here.

Here’s what it looks like inside…


An inside look at St. Paul’s Cathedral

Are These Lenders Nuts?

Back to the record-setting junk bond market…

On Friday, Bloomberg reported:

High-yield spreads have tightened to levels not seen since June 2007 amid a relentless rally in speculative-grade debt. Investors are still pouring money into the sector as they search for yield in an era of historically low rates. Average junk-bond yields stand at 3.89%, just five basis points from their all-time low.

Meanwhile, core CPI inflation is showing inflation running at over 3%. (Core CPI is the low-ball inflation metric used by the Federal Reserve. It strips out food and energy prices from the CPI, or Consumer Price Index.)

That means junk bond investors are accepting, AT BEST, a real yield on their loans just under 1% (if you believe the Federal Reserve’s measure of inflation).

Then, you factor in the fact that historically, default rates on these bonds range from 1% in the best of times to more than 10% in the worst of times.

And that brings us back to the junk-rated borrower I mentioned above, Centene, which was able to borrow at such low yields (or interest rates).

Normally, only companies with good credit standing can borrow at low interest rates. So you have to wonder, who are these lenders? They have to be nuts…

Then I look at MicroStrategy, another junk-rated borrower, borrowing money this month at 6% to speculate on bitcoin on margin.

Again, I wonder, who are these lenders?

Their loan to MicroStrategy has almost no upside if Michael Saylor (the company’s co-founder and CEO) is right about bitcoin… and almost all downside if he’s wrong.

They have to be nuts…

The Best Way to Protect Our Savings

The bottom line is:

The junk bond market is showing us again what we already know…

The world is at risk of a terrible deflation.

I wish I could short junk bonds somehow, but I don’t know how to do it sensibly in this environment…

I wish I could short stocks like Tesla or MicroStrategy or Centene, but again, I don’t know how to do it safely in this environment…

I wish I could sell call options in “meme” stocks like GameStop and AMC to the crazy Reddit traders… but I don’t know how to do that safely in today’s environment, either.

In short, I wish I could be a hero somehow and bet against the great credit bubble. But I haven’t figured out how to do that and still sleep well at night.

For now, the only thing I know for sure is this…

I’m going to keep our savings as far away as possible from the crazy credit markets. And the best way to do that is to:

  1. Hold physical gold and watch the Dow-to-Gold ratio collapse over the next 10 years,

  2. And have a plan to buy great companies on the cheap in the future, when the Dow-to-Gold ratio collapses and stocks become cheap again relative to gold.

In the meantime, if anyone has any good ideas for safely betting on the collapse of the great credit bubble, you have my attention…

– Tom Dyson

P.S. As regular readers know, the Dow-to-Gold ratio measures the Dow Jones Index against the price of gold. One way to think about the ratio is, it shows the real “gold-adjusted” returns of the stock market once you’ve stripped out currency debasement and inflation.

If I’m right, and there’s a terrible debt deflation coming, the real “gold adjusted” returns of stocks are going to be terrible over the next 10 years. Stocks are highly leveraged to the corporate debt markets. They are – in effect – the present value of all future profits generated by corporate America after the debt has been repaid. If the debt becomes a problem, the present value of those future cash flows is going to plummet…

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Appreciation for Tom’s interview with Bill Bonner, where he laid out his case for investing in precious metals… a suggestion about his method of storing gold… and praise for the Dyson family’s homeschooling journey

Reader comment: Yours and that of Bill Bonner are the ONLY newsletters I avidly read and heed daily. And following a live interview with you that I watched and re-watched about 18 months ago… You present a candid, clear-sighted, financially educated understanding and suggested “treatment” of the ongoing situation. We are all appreciative.

Reader comment: I was born during the year that U.S. citizens’ gold was confiscated. I became suspicious when U.S. gold was added to the CUSIP [Committee on Uniform Securities Identification Procedures] list. If they know about it, they can take it. I prefer to buy non-CUSIP gold, even though the premium is high. And it is stored in a private depository, segregated and available upon demand.

If you were not joking when you said your gold was “buried,” it might be a good idea to see whether a good metal detector can “see” it and, if so, to bury it deeper. Thanks for your thought-provoking writings.

Reader comment: One of my favorite thoughts about children’s education is that students in American public schools are being “trained” as opposed to being “educated.” I believe your children are getting a much better EDUCATION.

Reader comment: Your children are getting a much better education than sitting in a school. Seeing these objects, having visited where they originally came from, hearing the back story from an expert, reading about them in a great book – all this makes learning come alive.

Human beings thrive when they get holistic learning that involves all their senses… a classroom can never compete with your children’s experience.

Tom’s note: As always, thanks for writing in! We read every note you send us. Please keep writing us at [email protected], and I’ll do my best to answer your questions in a future Friday mailbag edition.