As I write this, the U.S. 10 Year Treasury bond is yielding 2.31%. It’s currently at a 16 month low. The Fed has been manipulating interest rates lower since 2010, but they have been dramatically reducing their purchases of Treasuries and Mortgage bonds. The 10 year Treasury yield should be rising, if the economy is truly improving. Instead it is plunging, indicating a recession. Real short term interest rates are already Negative. The entire financial system in the United States is manipulated, warped, and false. The free market does not exist. Everything is controlled and rigged by the Federal Reserve and their Wall Street owners.
Interest rates in a free market are supposed to reflect risk, debt levels and economic growth. Look at the bullet points below. Ireland’s debt levels are off the charts. Their economy is still in a shambles. In a free market only a fool would buy their government bonds. I wouldn’t buy their debt if it was yielding 10%. How could it possibly be yielding 1.63%, far lower than U.S. bonds? Spain is on the verge of revolution. Youth unemployment exceeds 40%. Their economy is a joke. Their debt load is unsustainable. How can their bonds be yielding 2.038%?
Is Ireland, Spain, France and Italy really a safer investment than the U.S.? Of course not. Europe is disintegrating before our very eyes. Germany is plunging into recession. The economic sanctions on Russia are backfiring. Not selling stuff to Russia hurts your economy. It’s going to be a cold winter in Europe, especially when Russia turns off the natural gas. The EU has papered over their insolvency with trillions of new debt. Pretending there is no risk, doesn’t mean there is no risk.
Interests rates across the globe do not reflect reality. Central Bankers and politicians think they can pull levers and control the global economy. They are sadly mistaken. The unintended consequences of their reckless actions will destroy the world. When all the bubbles implode simultaneously, the anger, discontent, disillusionment, and seeking of the culprits will lead to riots, revolution, and ultimately to war.
None of this makes sense, but the consequences of what these bankers have done will be dire. This will not end well.
- IRELAND SELLS 10-YEAR BONDS AT RECORD-LOW YIELD OF 1.63%
- GERMAN 10-YEAR BUNDS RISE; YIELD FALLS 2 BASIS POINTS TO 0.88%
- DUTCH 10-YEAR GOVERNMENT BOND YIELD DROPS TO RECORD-LOW 1.021%
- PORTUGUESE 10-YEAR BOND YIELD DROPS TO RECORD-LOW 2.942%
- FRENCH 10-YEAR GOVERNMENT BOND YIELDS DROP TO RECORD-LOW 1.214%
- U.S. 10-YEAR NOTE YIELD DROPS TO 2.296%, LOWEST SINCE JUNE 2013
- SPANISH 10-YEAR BOND YIELD DROPS TO RECORD-LOW 2.038%
- FINNISH 10-YEAR YIELD DROPS TO 1% FOR FIRST TIME ON RECORD
looks like all are headed to zero. that’s when i’ll jump with both feet.
on a serious note, am i wrong to suggest that the issuance of sovereign debt is immoral? money is lent to a corrupt, stupid and criminal entity and in return the lender is given a tiny yield with printed money or tax receipts. i hope that after the coming economic implosion, there will be no more bond market. and bond salesmen will do the decent thing and go hang themselves. or, do something productive like scrub toilets at penn station.
By Ben Hunt
Global growth is really bad! Hooray!
That was the verdict of US markets yesterday, as the Fed minutes “revealed” (to use the breathless phrasing of mainstream financial media) a “growing concern” with the damaging impact of European torpor and a stronger dollar on US growth, and it’s a perfect example of why I’ve called a top in the Narrative of Central Bank Omnipotence. Not a top in market price levels (although I’m increasingly thinking that, too), but a top in market faith that price levels are completely determined by central bank policy. This is an observation that I’ve discussed at length (and perhaps ad nauseam) in recent Epsilon Theory notes like “The Ministry of Markets” and “Fear and Loathing on the Marketing Trail”, so I won’t belabor that again here.
What’s interesting to me is not this latest success of the Narrative of Fed Omnipotence. No, what’s interesting to me is this week’s failure of the Narrative of ECB Omnipotence. The Fed minutes totally bailed the market out today and (truly) revealed the Fed as the only central bank with the Common Knowledge firepower to withstand a serious growth scare. The ECB, on the other hand, has lost an enormous amount of Narrative mojo over the past week. The perception of Mario Draghi has clearly shifted from Super-Mario, willing and able to do “whatever it takes”, to what we would call in Texas “all hat and no cattle”.
Is this fair? Is this reflective of fundamental reality? No, of course not, but since when did that matter? Draghi didn’t change. Germany’s position didn’t change. Miserable European growth rates didn’t change. What changed is the direction of US monetary policy. Draghi’s beautiful words work wonders when he’s standing behind the 600-lb gorilla of the US Fed. But when that gorilla begins to stumble off along a different jungle path, as we’ve seen over the past few months … well, that’s an enormous challenge even for as skilled a Missionary as Mario Draghi. Toss in a few well-timed slashes from a master bureaucratic knife-fighter like Jens Weidmann, some disappointing macroeconomic news, and all of a sudden you’ve got a crisis in confidence with European markets.
I’m reminded of the distinction in political regime theory between “sensitivity” and “vulnerability”. Sensitivity reflects the forcefulness with which external events impact a country or institution within a given regime. Vulnerability reflects the cost of changing that regime. So, for example, while both the US and Japan would be quite sensitive to a supply shock in the price of oil from a Middle Eastern blow-up, Japan would be far more vulnerable than the US if that temporary shock became a permanent change in the oil supply picture. Because the US has more domestic energy alternatives, the long-term cost of adapting to a new and different energy world would be much greater for Japan than the US. Similarly, while both the Fed and the ECB are sensitive to growth shocks, the ECB is far more vulnerable to a world of secular growth stagnation. And the market smells that vulnerability like stink on a wet dog.
I’ll have more to say about sensitivity and vulnerability in future notes, because I think it’s a valuable concept for asset allocation and risk management. Beta and volatility are measures of sensitivity, not vulnerability, but they dominate our econometric risk measurement techniques. We need a measure of portfolio vulnerability (and this is not at all the same thing as tail risk), and I think it lives in the epsilon term.
Today, though, the Epsilon Theory point is that we’re seeing the first unexpected ramification of a divergence in global monetary policy – the ECB is revealed as the yappy little Chester to the Fed’s bulldog Spike. Now in the cartoons there’s always a large enough scare to turn big bad Spike into a quivering mess, and that may well turn out to be the case as the global growth boogieman continues to grow in scale and scope, particularly if it spreads into the political sphere. But for now markets are still fervent believers in Fed Omnipotence, even as faith in the ECB is starting to crumble. I’m a seller of both Narratives.
The bond “market” is the largest asset bubble in world history. When the central banks lose control of this puppy, it’s going to be epic.
Got gold?