Oil will go up and down, stocks will go up and down, gold will (probably) go up and down – but the plummet in the 30 year Treasury rates is probably the most important thing going on the financial markets.
Friday, the 30 year Treasury Bond dropped another 20/100th of a percent to end up paying 3.3%. The way bonds work is when interest rates go down, the price of the existing bonds goes up. If you owned a bond with 29 years left with a rate of 4%, your bond is worth roughly 20% more than a bond you could buy today ( (4.0-3.3) * 29) [that’s an oversimplification on purpose]
What this means is the flood of phony dollars created by the Federal Reserve QE1/QE2 is not stimulating the economy. Large businesses and institutional investors are getting fearful of having significant amounts of money sitting in accounts at banks – so they are parking their money in -any- US Treasury security they can get their hands on.
The problem here is that buying long term bonds as a place to park money is an extremely risky thing to do – leverage works in both directions. If the interest rates suddenly reverse course (beyond the control of the Fed) and competing “safe” 30 years investments suddenly went to 5%, overnight your 30 year bond could lose half of its value. 30 year T-Bonds are definitely not a safe place to “park” money. For investors outside the United States, they’re also buying currency risk – if the US Dollar craters, they will lose purchasing power in addition to losing the value in the Bond.
Most of these people are not stupid. If there was something safe that was a better alternative, they would be in it. They aren’t buying the bonds for 3.3% interest rate for the next 30 years – they’re buying them in the hope that a coming global financial collapse will wind up with the US Treasury surviving.