If the bond market has begun a new, long-running bear market, the bond vigilantes will be riding in force. From David Stockman at lewrockwell.com:
Most of today’s stock speculators don’t remember the bond vigilantes and wouldn’t even recognize one in the flesh. They were just too scary to have been a character on Sesame Street.
But last night some strange riders were spotted galloping eastward from China and Japan. While their visage may be somewhat foggy to the uninitiated, the boys and girls on Wall Street are about to discover that it’s not exactly Big Bird swooping onto their playground.
And at precisely the worst time. After all, the 150 Dow point melt-up each day since the turn of the year was fueled by pure speculative momentum. As Heisenberg noted this AM, the S&P 500 has posted one of the longest stretches without a 5% drawdown in recorded history.
Likewise, the weekly RSI for the S&P 500 is now the most overbought since 1959. That is to say, since the days when the great team of President Dwight Eisenhower and Fed Chairman William McChesney Martin saw to it that the Federal budget was balanced and that the Fed’s punch bowl didn’t linger down on Wall Street when the revilers got too frisky.
Needless to say, back then there were no bond vigilantes, either, because they weren’t needed. UST’s got priced in the bond pits by investors and savers who didn’t cotton to either inflation or fiscal profligacy. And after the Treasury-Fed Accord of 1951, they would have been just plain horrified by any attempt from the Eccles Building to tamper with UST bond prices or the yield curve.
That’s another way to say that the bond market was healthy, stable and efficient because it was driven by real money investors deploying private savings from income and production, not fiat credits issued by the Fed’s printing presses in the manner of QE.
As it happened, real money savers were destroyed by Arthur Burns and William Miller during the 1970s. That’s because these two Fed chairman—one cowardly and the other clueless—-bent to White House based political bullying and Keynesian economic advice, which was approximately the same thing.
To continue reading: They’re Back—Long Live The Bond Vigilantes!