Both stocks and fixed income down at the same time is a real bummer, you know, like in 2022.
UST yields in the aggregate tonight are at 4.45 vs 4.356 at the end of November.
UST yields have risen 375 basis points net in the aggregate in the three months since the Fed started cutting the Fed Funds Rate on September 18. That's +6.93%, which is hilarious.
UST averages tonight: Bills 4.365 Notes 4.410 Bonds 4.695.
Low duration issues yield the least, long duration issues the most, and the middle looks like the middle should look, middling.
That's how it should be.
Low duration issues have been dominating the curve, yielding the most. Why, just at the beginning of the month the 1MO still yielded 4.75, more than any other security. Tonight the 1MO yields 4.44 and the 20Y yields 4.74, the leader. The yield laggards are the 6MO and 1Y at 4.30. That's what you want to see happen.
The Fed today dropped the Federal Funds Rate 0.25 points to 4.25. I expect the short end to keep moving lower as a result, and the middle to rise more in tandem with the long bonds as inflation continues to bite.
But we shall see.
But the article name-checks Donald Trump five times because he's an opponent of Fed decisions.
There's a whole movement out there that wants to End the Fed, composed of Republicans, Democrats, and libertarians, which CNBC is loathe to mention.
Many of them argue that the US 2-year Treasury Note should be the benchmark for the Federal Funds Effective Rate, not the whim of the Fed Chair and the Federal Open Market Committee, who are un-elected, well-connected, and VERY WELL PAID elites who watch out primarily for the interests of the banksters.
For example, despite the disastrous Zero Interest Rate Policy post-Great Recession, DGS2 resisted it and outran DFF throughout the period under Obama and Trump, and anticipated the recent inflationary outburst by starting to rise in the spring of 2021, a full year before the Fed moved to "combat inflation" by raising the funds rate in the spring of 2022.
Similarly DGS2 also started to fall in November of 2023 despite no change to Fed policy, anticipating the recent decline of inflation rates by almost a year.
The role of the US Treasury Secretary, AS MUCH A CREATURE of the Executive as the Fed Chair, is also huge for interest rates because the Secretary decides how to divvy up the debt securities for auction by duration.
Biden's Treasury Secretary Janet Yellen has been in the news for driving up the issuance in T-bills to 22% when 15% has been customary, which has contributed to longer rates falling and stocks rising, just in time for the election.
But the costs of this have been dramatic, financing deficit spending at the highest rates and driving interest payments on the debt to the third spot in the budget, behind only Social Security and Medicare.
Jerome Powell is the biggest phony inflation fighter the country has ever seen.
He was appointed by Trump! So much winning!
Core pce inflation previously exceeded the ten year yield in 1974-75 and in 2012 (barely).
The Fed's primary inflation-fighting tool has been the Federal Funds Rate, but it let inflation run wildly out of control before even lifting a finger to stop it in March 2022 when the Fed finally acted and started raising the rate.
It is a shameful episode which has benefited businesses which hiked prices higher than inflation to goose profits, and the federal government which desperately needed to devalue its mounting debts, all at the expense of the average American.
The lack of outrage over this is a study in the depth of American servitude. Slavery didn't end in 1865 for African Americans. It became the common lot of us all.
Musk can extract the $44 billion price tag for tax loss purposes and relaunch the thing as the everything platform he keeps talking about.
This reminds me of the incredulity of Wall Street over Powell's relentless increases to the Federal Funds Rate. He telegraphed it repeatedly months in advance and then raised rates incrementally and said he would keep doing so, but they would not believe, and still do not.
UST yields rose a net 1.31% in the aggregate week over week on 7/28.
DFF rises to 5.33% after the latest FOMC rate hike.
Year to date Treasury, Total Bond, Cash, and Total Stock performance using popular Vanguard funds:
VFISX +0.75% VFITX 0.90% VUSTX 1.58% VBTLX 2.05% VMFXX 2.75% lol VTSAX 19.99%!
Stocks have been the place to be, and cash has beaten even the total bond market.
Meanwhile stocks are obscenely overvalued at 169 using the latest report of GDP out Thursday:
The Federal Funds Rate at 5.07% is ineffective. It should be double that.
They anticipate higher, but not by much, which means more rate hikes this year.
The yield curve aggregate yesterday closed just 4 basis points lower than the current cycle high of 4.674% achieved on March 8th, at 4.671%. That's the sum of the basis points for all US Treasury securities marketed yesterday divided by 13 (ranging from 1-month securities to 30-year).
To say the Fed's response to inflation has been timid would be an understatement.
In the 1980s the Fed's response to core inflation such as we experience today at 5.3% year over year was a Fed Funds Rate in excess of 10%. We're at 5.08%. The yield curve is not steppin' and fetchin' when the big dog won't bark.
This is not a serious country, and is perversely more than willing to inflict the worst tax on all, namely inflation, mostly because the whole damn economy is predicated on 2% inflation, which halves your nestegg in 35 years.
At 5% it does that in just fourteen.
It's criminal.
Gold is at least 167% overvalued relative to inflation since 1913. $600ish gold makes sense. $1600 gold does not, let alone $2067, the 2020 high.
Meanwhile stocks are off-the-charts overvalued, about 93% relative to the post-Great Depression median valuation of 81 through 2019, as of the latest GDP figures from late May.
Speculation in both gold and stocks, not to mention a host of other things, has been driven by Federal Reserve interest rate suppression since 2001.
How long elevated gold and stock prices can persist in the new higher interest rate environment is anyone's guess.
The Fed Funds rate still averaged a low 1.69% in 2022, so it's still early innings.
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| May 25, 2023 |
The Fed can do only so much, but a Fed Funds Rate of 4.83 is hardly adequate for current conditions.
The fiscal side in this, however, has been completely ignored.
Outlays for 2020-2022 alone have topped $19 trillion vs. receipts south of $12 trillion.
Xi Jinpingpong blamed the US for the first time for his domestic failures, according to the Wall Street Journal. He's a commie reactionary with Chinese characteristics. Not a good sign of what's to come.
Some cracker Republican in Florida wants bloggers to register like lobbyists, and Ron DeSantis finally came out against that, thankfully. A little late, though. Newt beat him to it.
Vivek Ramaswamy says CPAC shook him down for $$$$ in exchange for which they'd see to it he did better in the straw poll. There's no report that Matt Schlapp also asked for a reach-around.
LIBOR surpassed 5% for the first time in 15 years on Monday.
Georgia fired up a nuclear power reactor this week. The country now has 93 operating. 67 were never finished after Three Mile Island.
A dog and her pups were rescued alive and well from a basement in Turkey more than a month after the Feb 6 earthquake. The death toll is up to 52k.
Thousands of Iranian schoolgirls are being systematically poisoned in Iran. There was a similar incident in Afghanistan during the first Obama administration. Rag-headed heathen bastards.
South Africa is going the way of Rhodesia.
The UST yield curve aggregate made a new high 4.674% Wednesday v Fed Funds Effective Rate 4.57.
The Obama of Big Oil said peak production from 2019 will never be surpassed.
Pundits who predict inflation won't spiral like the 1970s fail to understand that the price of energy inputs is determinative. Unless energy costs come down big, we're in for it.
Cumulative deaths per million from C-19 in the US are 3,285. In Africa just 181. Follow the science.
The tide is turning on the Wuhan Lab Leak Theory of the origin of C-19 in the press.
Anthony Fauci has authored a paper in CELL which calls for better vaccines than the ones we've got, whether experimental or not. No kidding.
Silicon Valley Bank failed today, the first failure since 2020 when there were four. There was a huge flight to safety. Stocks sold off and longer dated Treasuries rallied 3.45%. The yield curve aggregate plunged 230bp, 3.82%.
Full time employment rose a little in Feb to 49.66% of civilian population. The average last year was 50.1%.
The Fed Funds Rate will be kept higher for longer.
The yield curve recovered 98 basis points in the last week to close at 5488 on Nov 18.
Despite all the alarming volatility in US Treasuries, the curve is little changed from Oct 28 at 5487 or Oct 19 at 5486, one month ago.
The upward trend remains intact. Raising the Fed Funds rate to 3.83% has produced an overall yield curve at 4.22%.
There's plenty more to be done.
The lying rhetoric is designed to persuade the Fed to halt ("You've done enough!"), enlisting as many dupes along the way as it can to join the chorus, since easy money is the industry's goose that laid the golden egg.
But easy money is why this country is $31 trillion in debt, and why inflation is raging at an average of 8.3% in the first half of 2022.
Since March foreigners have held $300 billion less of the stuff on net through September, which is not a good sign.
But consider that there's about $2.9 trillion in US Treasury notes issued in 2020 alone paying just 0.6% on average and maybe you can understand why.
Meanwhile investors holding bonds are down 30.95% year to date (TLT) at the same time the S&P 500 is down 17.33%. A total bond index like VTSAX is down less, 16.92% year to date, which is cold comfort.
But that's not the Fed's biggest problem.
The Fed's biggest problem remains the so-called "dual mandate", to maintain stable prices AND full employment at the same time.
Our disgusting Congress foisted the latter on the Fed in 1978, which was nothing but a damned if you do, damned if you don't abdication of its own political responsibility dumped onto the appointee of the executive.
But the disgusting Congress represents the disgusting people, who want tax cuts AND infrastructure spending at the same time.
The dual mandate didn't stop Paul Volcker from doing what needed to be done to subdue inflation from 1979, but those were different times when the political tables were the reverse. Volcker was a Democrat appointee saddling a new Republican president with an unemployment rate of 9.7% by jacking up the cost of money.
Jay Powell is a Republican appointee who will have to do the same to a Democrat president to end the current madness.
The pressure on him to relent comes from every quarter.
We'll see if the new Republican House has the cojones to back him, which it should if it gives a fig about the future of the country.
But Jay Powell will have to prove that he has the cojones first, because the Congress is full of girly men.
He has hardly begun to fight.
The effective federal funds rate stands at 2.33% and $8.85 trillion remains on the balance sheet while Powell makes speeches.
Borrowing is still very cheap for the big boys and the Fed's finger on the scale makes it impossible to know the true value of its mortgage backed securities and US Treasuries.
Meanwhile inflation rages at 8.5% in July.
The market "rout" is merely another yawn as Americans get punished at the grocery store and the gas station.
Current GDP of $24.883 trillion, reported 8/25, implies a fairly valued market level of around 1,600 not 4,057. The S&P 500 remains 153% above that.
They remain rich, and you remain . . . the reason why.
A 100 basis point rise, as in the story, would take it to 2.58, an increase of 63%, which is the draconian kind of thing Cathie Wood likes to dramatize.
But no one understands draconian. In a world of superlatives where everything is awesome, the smallest changes are blown all out of proportion.
Draconian would be raising the rate at least to the level of inflation, now 9.1% year over year (not seasonally adjusted).
Actual draconian is necessary.
But these are not serious people. None of them.
Paul Volcker was Fed Chair from 1979 to 1987.
His peak average Fed Funds Rate was north of 16% in 1981.
From 1983 through 2001, the Federal Funds Rate was aggressively high and averaged 6.27%, and the Consumer Price Index averaged 3.24%.*
From 2002 through 2020, the Consumer Price Index was much lower on average at 2.01%, as the Fed pursued an aggressive low interest rate policy, which averaged just 1.36%.
So, lower Federal Funds Rate, lower inflation, higher Federal Funds Rate, higher inflation, just the opposite of what the Fed says it intends.
But only a numbskull thinks these are correlated. The Fed is merely reactionary to complex existing phenomena, not pro-actively creating conditions.
* I used the average of the annual averages.
Jason Lewis' remedy for inflation, which came in at 5% year over year in May, actually 4.9%, is the standard remedy: The Fed should raise the interest rate, which is effectively zero at the moment and has been for some time.
Aggressive low-interest-rate policy has been the rule since 2002, with the brief escalation from 2005-2007 during the housing bubble being the exception. Over those 19 years through 2020, the average effective federal funds rate (DFF) has been 1.36%.
Contrast that with the 19 year period previous to that, from 1983-2001, when the DFF averaged 6.27%.
That should have kept inflation under control, right?
Well, no.
Under the low interest rate regime we've had an average annual change in CPI of just 2.01%. For the previous period with the higher DFF we had higher inflation, 3.24% per annum on average.
All inflation is bad. At 2% per annum the value of your pile of assets is cut in half in 35 years. At 3% it's closer to 20 years.
What kind of conservatism is it to advocate for either one?
Real conservatives believe in sound money. Less unsound money won't do.
The evidence is the two things, the fed funds rate and CPI, aren't correlated.
And CPI is rightly mocked because its components do not capture the inflation which has infected the cost of education, health care, housing, stocks, gold, intellectual property, et cetera in our life times.
It's the purchasing power of the dollar which has continued its inexorable decline which is the problem. We haven't had a sound dollar policy since the advent of the Great War in 1914. The desire for an independent monetary policy conducted by a Federal Reserve from 1913 came at the price of the ongoing robbery of the wealth of the people. World War couldn't have been financed without it, nor the Welfare State after it.
It's hardly a coincidence that political conservatism has been in retreat from the same time. You make a lie of the money in your pocket, you make a lie of everything else, too. Slowly at first, and then suddenly.
This American swindle will not continue forever.
