Tag Archives: interest rates

Billionaire hedge fund manager urges diversification out of the dollar, by Simon Black

Why would you want to stay in a currency its sponsors are hell-bent on debasing? From Simon Black at sovereignman.com:

Ray Dalio is the founder of one of the largest investment firms in the world and has amassed a personal fortune nearing $20 billion from his business and investment acumen.

In short, he understands money and finance in way that most people never will. And it’s for this reason that his latest insights are so noteworthy.

In a recent, self-published article entitled “Why in the World Would You Own Bonds When. . .”, Dalio makes some blunt assertions about the alarming US national debt, the decline of the dollar, and other negative trends in the Land of the Free.

Here’s a summary of the major points:

1) Interest rates are now so low that “investing in bonds (and most financial assets) has become stupid.”

Dalio points out that bond yields are so low today that investors would essentially have to wait more than 500 years to break even on their bond investments after adjusting for inflation.

That’s why sensible people are already ditching the bond market.

JP Morgan’s CEO Jamie Dimon recently said he wouldn’t touch a US government 10-year Treasury Note “with a ten foot pole.” Neither would Dalio, as he told Bloomberg this month.

2) This is a big problem for Uncle Sam. Investors are ditching US government bonds at a time when the US is “overspending and overborrowing”.

They just passed a $1.9 trillion stimulus, and they have another $3 trillion spending package ready to go, plus plenty of momentum for Universal Basic Income, health care, Green New Deal, and just about everything else.

In short, the government is going to have to sell a LOT of bonds (i.e. increase the debt) at a time when investing in bonds has become stupid.

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Willful Blindness, Societal Rift & Death of the Dollar, by Michael Lebowitz

History is replete with governments who borrowed themselves to ruin, but not one that borrowed its way to prosperity. From Michael Lebowitz at realinvestmentadvice.com:

“It was assumed, even only a decade ago, that the Fed could not just print money with abandon. It was assumed that the government could not rack up huge debt without spurring inflation and crippling debt payment costs. Both of these concerns have been thrown out the window by large numbers of thinkers. We’ve seen years of high debt and loose monetary policy, but inflation has not come.

So the restraints have been cast aside.”

– David Brooks- New York Times-  Joe Biden Is A Transformational President

Regardless of whether you agree or disagree with David’s politics, he makes an incredibly bold statement above. In no uncertain terms, he argues, massive amounts of monetary and fiscal stimulus can be employed with no consequences, no restraints.

We fear this naïve mindset is not just David Brook’s, but a rapidly growing school of thought among economists, politicians, and central bankers.  We all want unicorn-like solutions to what ails us, but the truth, grounded in history, is there is no such thing as a free lunch.

Since David shrugs off any consequences of aggressive monetary and fiscal policy, we bring them to the forefront.

Who Is Funding Stimulus?

Someone must pay for rampant Federal spending.

Ask your spouse, neighbor, or friend who that might be, and they are likely to tell you the taxpayer is on the hook. To some degree, they are correct but increasingly less so.

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Rigged to Fail—From Musk to Powell, by Matthew Piepenburg

Living on lies is like living on junk food and TV, sooner or later it will kill you. From Matthew Piepenburg at goldswitzerland.com:

For quite some time we have been warning about the rising shark fin of rising yields and rates.

As of this writing, one can almost hear John Williams’ orchestral theme song to Jaws ringing in the ears.

The Slow Creep

Mortgage rates in the U.S. have hit 3%, dramatically curtailing mortgage re-fi’s.

Meanwhile, oil prices are now at levels not seen since 2018 (as broader commodities in general are on the rise) while the tech stocks of the NASDAQ (most of which thrive on cheap rates) recently, and predictably, saw volatile swings, at one point down past 10% from their February 12th peak.

Rates are up, the dollar is up and as Barron’s reporter, Janet H. Cho, observed: “Things are getting interesting.”

Unfortunately for Barron’s readers, however, these “interesting” developments have little if nothing to do with what she described as “economic growth picking up.”

Economic growth? Huh? Really? C’mon…

Spinning the “economic growth” meme for rising yields is akin to attributing Lance Armstrong’s cycling success to an apple-a-day rather than a steroid per week.

What Barron’s feature articleis conveniently overlooking is the far more obvious fact that investors, here and around the world, are calling the Fed’s bluff, not swooning over “economic growth.”

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The Fed’s Most Convenient Lie: A CPI Charade, by Matthew Piepenburg

If the Fed allowed the true inflation rate to be publicized, and consequently bond buyers demanded interest rates that offered a “real,” inflation adjusted rate of return, it would be virtually impossible for the government to finance its deficits. From Matthew Piepenburg at goldswitzerland.com:

Despite a penchant for double-speak that would make a politician blush, the Fed tells us that its primary focus is unemployment not inflation.

Let me remind readers, however, that an openly nervous Mr. Powell came out in the summer of 2020 with a specific, as well as headline-making, agenda to “allow” higher inflation above the 2% rate.

This “new inflation direction” ignored the larger irony that the Fed had been unsuccessfully “targeting” 2% inflation for years before changing verbs from “targeting” to “allowing.”

Such magical word choices reveal a critical skunk in the Fed’s semantic wood pile.

If, for example, the Fed was honestly “targeting” inflation to no success for years, how could Powell suddenly have the public ability to then “allow” more of what he failed to achieve before, as if inflation was as simple to dial up and down as a thermostat in one’s home?

Dishonest Inflation Reporting

The blunt answer is that the Fed, in sync with the fiction writers at the Bureau of Labor Statistics (BLS), reports consumer inflation as honestly as Al Capone reported taxable income.

In short: The Fed has been lying about (i.e. downplaying) inflation for years.

As we’ve shown in many prior reports, the Consumer Price Index (CPI) scale used by the BLS to measure U.S. consumer price inflation is an open charade, allowing the BLS, and hence the Fed, to basically “report” inflation however they see fit—at least for now.

If, for example, the weighting methodologies hitherto used by the Fed to measure CPI inflation in the 1980’s were used today, then US, CPI-measured inflation would be closer to 10% not the reported 2%.

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Stagflation Subterfuge: The Real Disaster Hidden By The Pandemic, by Brandon Smith

It’s not the coronavirus that’s killing the economy, its the response, notably lockdowns, that done the trick. From Brandon Smith at zerohedge.com:

Authored by Brandon Smith via Birch Gold Group,

In recent economic news, headlines are being dominated by concerns over rising bond yields. Increased bond yields are a sign of a possible spike in inflation and, logically, they call for the Federal Reserve to raise interest rates in order to prevent that inflation.

Higher bond yields also mean there is a competitive alternative to stocks for investors – both factors that could trigger a plunge in the stock market.

If one studies the real history behind the stock market crash during the Great Depression, they will find that it was the Federal Reserve’s interest rate hikes that caused and prolonged the disaster after they had created an environment of cheap and easy money throughout the 1920s. Former Chairman Ben Bernanke openly admitted the Fed was responsible back in 2002 in a speech honoring Milton Friedman. He stated:

“In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn. Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

This then raises the question – inflation or deflation? Will the Fed “do it again?”

Probably not in exactly the same way, but we will see elements of both inflation and deflation soon in the form of stagflation.

It’s a Catch-22 that the central bank has created, and many (including myself) believe that the Fed has created the conundrum deliberately. All central banks are tied together by the Bank for International Settlements (BIS) and the BIS is a globalist institution through and through. The globalist agenda seeks to trigger what they call the “Great Reset,” a complete reformation of the global economy and capitalism into a single one world socialist system… managed by the globalists themselves, of course.

In my view the Fed has always been a kind of institutional suicide bomber; its job is to self-destruct at the right moment and take the U.S. economy down with it, all in the name of spreading its cult-like globalist ideology.

The only unknown at this point is how they will go about their sabotage. Will the central bank continue to allow inflation to explode the cost of living in the U.S., or will they intervene with higher interest rates and allow stock markets to crash?

Either way, we face a serious economic crisis in the near future.

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10-Year Treasury Yield Hit 1.21%, More than Doubling Since Aug. But Mortgage Rates Near Record Low. And Junk Bond Yields Dropped to New Record Lows, by Wolf Richter

Interest rates for US government debt have been creeping up, but they’re probably just getting started. From Wolf Richter at wolfstreet.com:

Bond Market Smells a Rat: Inflation. So the Fed seems OK with rising long-term Treasury yields.

The bond market smells a rat, but the mortgage market and the high-yield bond market are holding their nose and plowing forward: The 10-year Treasury yield rose to 1.21% on Friday, the highest since February 26, when markets began their gyrations. This yield has more than doubled (+133%) from the historic low of 0.52% on August 4.

In early August, Wall Street hype mongers were still out there pushing the meme that the 10-year yield would fall below zero and be negative for all years to come, in order to entice buyers to buy at that minuscule yield. And had the yield dropped below zero, those buyers would have made some money – especially those with highly leveraged bets.

Alas, when potential buyers need to be enticed with a lower price, which is what began to happen after August 4, the price of that bond falls and therefore the yield rises, and those who’d bought at the lower yields are losing money. For example, at the most basic unleveraged level, the iShares Treasury Bond ETF [TLT], which tracks Treasury securities with at least 20 years of maturity left, fell 1.24% on Friday and is down 14.3% since August 4.

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The Number That Blows Up The World, “Everything Bubble” Edition, by John Rubino

In a massively over-indebted world, interest rates are king. From John Rubino at dollarcollapse.com:

We’re deluged with numbers these days, many of them huge, ominous departures from historical norms. But one matters more than the others. To understand why, let’s start with some history.

In the 1960s the US entered the expensive and divisive Vietnam War, while simultaneously creating major entitlement programs including (also very expensive) Medicare. In the 1970s, commodity prices, led by oil, started to rise due in part to the billions of new dollars sloshing around in the world, and in part to Middle East turmoil.

The above combined to produce rising inflation and a falling dollar, wreaking havoc in the foreign exchange markets and raising doubts about the viability of the dollar as the world’s reserve currency. It was a huge mess.

But the US recognized the gravity of the situation and, led by Federal Reserve chairman Paul Volker, responded aggressively by jacking up interest rates to double-digit levels. The Fed Funds rate hit nearly 16% in late 1979.

Fed Funds rate 1970s 10-year Treasury yield

This spike in interest rates, not surprisingly, sent the economy into recession in 1981 and shaved about 25% from the S&P 500.

S&P 500 1980 - 1982 10-year Treasury yield

But the harsh medicine saved the patient. Higher interest rates attracted global investment capital to the US and squeezed inflation out of the system. After falling by 29% versus the world’s other major currencies in the 1970s, the dollar went back to being the world’s rock-solid reserve asset in the 1980s. And the economy recovered and began a long run of mostly good times that culminated in today’s epic bull market.

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The Fed, Zombies, & The Pathway To Japanification, by Lance Roberts

We’re following in Japan’s tracks. From Lance Roberts at realinvestmentadvice.com:

We recently penned an article discussing the “moral hazard” fostered by the Fed’s ongoing monetary interventions. However, this story is fraught with zombies and the path to “Japanification.” 

The Fed recognizes their ongoing monetary interventions have created financial risks in terms of asset bubbles. They are also aware that most policy tools are likely ineffective at mitigating financial risks in the future. Such leaves them being dependent on expanding their balance sheet as their primary weapon.

Such was a point they made last year, which bypassed overly bullish investors.

“… several participants observed that equity, corporate debt, and CRE valuations were elevated and drew attention to  high levels of corporate indebtedness and weak underwriting standards in leveraged loan markets. Some participants expressed the concern that financial imbalances-including overvaluation and excessive indebtedness-could amplify an adverse shock to the economy …”

“… many participants remarked that the Committee should not rule out the possibility of adjusting the stance of monetary policy to mitigate financial stability risks, particularly when those risks have important implications for the economic outlook and when macroprudential tools had been or were likely to be ineffective at mitigating those risks…”

That was in January 2020. Just a couple of short months later, markets were in the worst drawdown since the “Great Depression.” 

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Peter Schiff: The Bond Market Is Rigged!

The Federal Reserve has its multi-trillion pound thumb on the scale. From Peter Schiff at SchiffGold.com via zerohedge.com:

You may have noticed that the financial media has started talking about inflation. But by and large, it’s not a warning. It’s reassurance. Many analysts are dismissive of any concerns raised about inflationary pressure. They often claim the bond market isn’t signaling inflation. But as Peter Schiff points out in a clip from a recent podcast, the bond market is rigged.

The narrative is that the bond markets aren’t signaling much concern about inflation. Treasury yields have risen in recent weeks with the 10-year rate now above 1%. As Peter pointed out in a more recent podcast, the upward trend does indicate some investors are starting to get nervous about inflation, and at some point, we could see “an explosive move up in interest rates.” But so far, the broader market hasn’t caught on. Even though the trend is up, yields remain historically low and they don’t exactly scream “inflation problem.”

After all, if investors were concerned about inflation, why would they be willing to loan money to the US government for 10 years at 1%?”

Typically, inflation is a major concern for lenders. If you plan to lend somebody money for 10 years, you have to consider what that amount of money will buy when you get it back. In effect, you’re giving up the opportunity to buy something with your money today in order to lend it to somebody else. You’re willing to do this because the borrower is paying you for the service of loaning him that money. But if inflation is going to eat away your purchasing power over time, you will want to charge a higher rate of interest to compensate for that loss.

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Bond Market Smells a Rat: 10-Year Treasury Yield Hit 1.04%, Highest since March. 30-Year 1.81%, Highest since February. Mortgage Rates Jumped, by Wolf Richter

The bond market may well be the canary in the coal mine for the impending financial collapse. From Wolf Richter at wolfstreet.com:\

Seems, inflation prospects jangled some nerves today.

The 10-year Treasury yield jumped 8 basis points today and settled at 1.04%, the highest since the wild panic days in mid-March 2020. As the yield rises, the price of that bond falls. This yield has now exactly doubled from the historic low of 0.52% on August 4, when folks were still betting that the 10-year Treasury yield drop below zero:

The 30-year yield jumped 11 basis points today to 1.81%, the highest since February 26. On March 3, as all heck was breaking loose, the yield had briefly plunged below 1% for the first time ever, and days later it was back at nearly 1.8%, in some wild and volatile panic trading. But this time, the upward trend started on August 4 and has been systematic:

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