Tag Archives: interest rates

Gilty Finking, by Bill Bonner

Posted on October 10, 2022 | Leave a comment

Very few financial fiduciaries are set up for rising interest rates. Many of them are using leverage to bet that interest rates will stay stable or decline, which makes it quite painful when they go up. From Bill Bonner at bonnerprivateresearch.com:

BlackRock’s liabilities, the Bank of England’s pivot and the folly of fake rates…

(Source: Getty Images)

Bill Bonner, reckoning today from Baltimore, Maryland…

Yes, dear reader, it’s a YODO world now. Investors are realizing that when they are dead, they are dead forever. No Fed voodoo to raise them from the grave.

And it’s the first time for most of them. No chance to practice. No opportunity to learn.

And so, the mood was glum at the end of last week. The jobs report on Thursday showed a stronger employment market than expected. Investors figured the odds of a Fed U-turn had gone down. They sold stocks. MarketWatch:

While markets have not yet morphed into an actual state of alarm, an increasingly dark sentiment is starting to brew behind the scenes.

Nikko Asset Management’s John Vail said a “short but scary” global recession is likely to be ahead. Ben Emons of Medley Global Advisors said Wednesday’s decision by major oil producers to cut production, starting next month, has the potential to turn into a prolonged stretch of higher inflation and big market swings. And volatility expert Harley Bassman said stocks could drop as much as 20% from where they are now — a magnitude similar to the single-day decline that took place during 1987’s “Black Monday” scare.

As the Fed raises rates, they become more ‘normal’ than they’ve been for many years. But ‘normal’ terrifies investors. It makes them realize how weird things have gotten and that they may have to back up before they can go forward. That is, they may have to give up their Bubble Era profits and admit that much of what they believed was either a lie or a delusion.

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Why Bonds Are Behaving Like Risky Assets, by MN Gordon

Posted on September 30, 2022 | Leave a comment

Bonds are always risky assets. People just forget that after an almost 40-year bull market. From MN Gordon at economicprism.com:

“When the [credit] delusion breaks, people all with one impulse hoard their money, banks all with one impulse hoard credit, and debt becomes debt again, as it always was.  Credit is ruined.”

– Garet Garrett, 1932, A Bubble that Broke the World

Down, Down, Down

Third quarter 2022 ends today [Friday].  We’re entering the year’s home stretch.  Thus, we’ll take a moment to observe where money and markets have been, so we can conjecture as to where they’re going.

To begin, United States stock markets are in an epic battle between bulls and bears.  For most of the year, the bears have been delivering heavy blows.  But the bulls have not taken their punches lying down.  Here’s a quick review of the three major U.S. Indexes…

After peaking out on January 4, 2022, at 4,814.62 the S&P 500 declined 24.46 percent to an interim bottom of 3,636.87 on June 17, 2022.  The DJIA fell approximately 19.71 percent over this time.

The NASDAQ’s decline commenced on November 22, 2021, at a peak of 16,212.23.  It then cascaded to an interim bottom of 10,565.14 on June 16, 2022, for a top to bottom decline of 34.83 percent.

The indexes then rallied into mid-August.  Many investors thought the bear market was over.  They invested accordingly.  But, alas, it was merely a sucker’s rally.  September was ugly.

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What the End of the Fed Put Actually Means, by Tom Luongo

Posted on September 18, 2022 | Leave a comment

It means there’s a chance that U.S. finances  and its economy are restored to sanity, although I wouldn’t advise holding your breath waiting for it. From Tom Luongo at tomluongo.me:

gold-dollar-trap

For more than a year I’ve been arguing that the Fed was tightening US dollar supply. When I first put the idea out there it was met with intense skepticism and, for the most part, it still is.

The Fed has long been the punching bag of hard money and alternative finance types because, frankly, it always deserved it. For nearly the past generation, until June of 2021, the Fed acted as the Central Bank of the World.

But we’re rapidly reaching the moment where a lot of people are finally beginning to realize maybe the vaunted “Fed Put,” the belief that the Fed always comes to the market’s rescue isn’t going to show up anytime soon, if at all.

Whenever there was a major crisis on the horizon the Fed was always there to provide the world with the dollars needed to keep things from collapsing completely. This was especially true in the aftermath of Lehman Bros. and the 2008 housing crisis which broke the post-Bretton Woods Dollar Reserve Standard ushered in by Paul Volcker’s extreme monetary policy of the early 1980’s.

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Why Artificially Low Rates Are Bad for You, by Daniel Lacalle

Posted on July 25, 2022 | Leave a comment

Perpetually suppressed interest rates are a lot like a diet of junk food and candy. It may taste good for a while, but eventually it will make you sick. From Daniel Lacalle at dlacalle.com:

The disastrous era of negative rates may be ending, but it is not over. Imposing negative nominal and real rates is a colossal error that has only encouraged excessive indebtedness and the zombification of the economy. However, nominal rates may be rising, but real rates remain deeply negative. In other words, rates are still exceptionally low for the level of inflation we have.

Negative interest rates are the destruction of money, an economic aberration based on the idea that rates are too high and that is why economic agents do not invest or take the amount of credit that central planners desire.

The excuse for implementing negative rates is based on a fallacy: that central banks lower rates because markets demand it and policy makers only respond to that demand, they do not impose it. If that were the case, why not let the rates fluctuate freely if the result is going to be the same? Because it is a false premise.

Imposing artificially low rates is the ultimate form of interventionism. Depressing the price of risk is a subsidy to reckless behaviour and excessive debt.

Why is it bad for everyone to keep negative rates?

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Doug Casey on Crashing Markets, Commodities, and What Happens Next

Posted on June 22, 2022 | Leave a comment

A quick preview of what happens next: nothing good. From Doug Casey at internationalman.com:

Crashing Markets

International Man: In addition to stocks, it seems that almost every asset class is also crashing.

What’s your take on the markets, and where do you think it’s headed?

Doug Casey: Let’s take them in order of size and importance.

The biggest market is bonds. It’s especially dangerous because it’s the most overpriced. Bonds are a triple threat to your capital. First, because of the inflation risk, which is huge and growing. Second, is the interest rate risk; I expect rates to double, triple, or quadruple from here, going back to or above the levels of the early 80s. The third is the default risk, which applies to everything except US Government debt. AAA corporate debt hardly exists anymore.

Interest rates have skyrocketed in the last year, with mortgage rates going from under 3% to over 6%. 30-year treasury bonds still only yield 3.25%. But with inflation running 10, 12, or 15% and going higher, long-term Treasuries have a lot further to fall. I remain short T-bonds.

Everybody’s paying attention to the stock market because they’re fully invested. The meme stocks, SPACs, and tech stocks have all collapsed. The big ones are down 25%, and many are down 80 or 90%. It’s not over yet. People still feel that they can buy the dips. They’re hurting, but they’ve been paper-trained over a couple of generations to believe the Fed will kiss everything and make it better.

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Posted in Banking, Business, Collapse, Currencies, Debt, Economics, Economy, Financial markets, Governments, Investing

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A Rare Paradigm Shift With Huge Implications… 5 Reasons Why It’s Imminent, by Nick Giambruno

Posted on June 21, 2022 | Leave a comment

Interest rates are going up, and given the long swings in the bond market, they’ll probably be going up for many years. From Nick Giambruno at internationalman.com:

Although many don’t realize it, interest rates are simply the price of money.

And they are the most important prices in all of capitalism.

They have an enormous impact on banks, the real estate market, and the auto industry. It’s hard to think of a business that interest rates don’t affect in some meaningful way.

Today, we are on the cusp of a rare paradigm shift in interest rates. Such changes take decades—or even generations—to occur. But when they do, the financial implications are profound.

Interest rates rise and fall through decades-long cycles, as seen in the chart below.

That makes sense, as debt is naturally cyclical. It allows people to consume more than they produce now. But it also forces them to produce more than they consume later to pay it off.

Interest rates last peaked in 1981 at over 15%. Then, they fell for 39 years and bottomed in July 2020 at around 0.62%.

The red line marks the long-term average of 5.6%.

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That Was Fast: 30-Year Fixed Mortgage Rate Spikes to 6.18%, 10-Year Treasury Yield to 3.43%. Home Sellers Face New Reality, by Wolf Richter

Posted on June 14, 2022 | Leave a comment

The bond market is oversold and due a pretty substantial rally. Nevertheless, most of us have seen the lowest interest rates were ever going to see in our lifetimes. From Wolf Richter at wolfstreet.com:

Something has to give. And it’s going to be price.

The average 30-year fixed mortgage rate today spiked to 6.18%, from 5.85% on Friday, according to the daily index by Mortgage News Daily. Aside from the sheer magnitude of the spike, this was also the highest mortgage rate since collection of the daily data began in April 2009. This was lightning fast, with mortgage rates nearly doubling since the beginning of the year (chart via Mortgage News Daily):

Mortgage rates follow the 10-year Treasury yield, but there is a spread between them, and the spread varies. The 10-year Treasury yield spiked by 28 basis points today, to 3.43% at the close, a huge move, and the highest since April 2011:

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Lagarde Capitulates As the Euro-Zone Divides, by Tom Luongo

Posted on June 14, 2022 | Leave a comment

ECB head Christine Lagarde is running into the reality that sooner or later she’s going to have to turn off the fiat debt machine. From Tom Luongo at tomluongo.me:

I know you probably get tired of me saying this but the Euro-zone is headed for a massive crisis. On Thursday, June 9th, the ECB came out with its policy statement, less than one week before the next FOMC meeting statement (June 14th).

It was a doozy. Christine Lagarde attempted early on to project that soothing calm central bankers are supposed to exude even when everything is collapsing around them.

But, truly this was Lagarde’s ‘Baghdad Bob’ moment. She stood up there and read the ECB’s policy statement off the teleprompter like she had something caught in her throat, likely the remnants of what is left of her conscience, because even she couldn’t swallow the bullshit she was slinging.

We have inflation under control. We will still grow in 2022 (BWAHAHAHA!) and growth will accelerate in 2023 and 2024. These people haven’t gotten one quarterly forecast right in … forever, and yet they project this idea that they have any clue what GDP growth will be in 2024?

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Holy-Moly Mortgage Rates Hit 5.64%, 10-Year Treasury Yield 3.12%, Long-Term Treasury Bond Fund Gets Massacred, by Wolf Richter

Posted on May 8, 2022 | Leave a comment

Interest rates’ spectacular ascent is due a pause, but the long term trend has shifted from the down to up. From Wolf Richter at wolfstreet.com:

So the Fed Gets Ready to Walk Away from the Bond Market, and All Kinds of Stuff Happens.

he price of the iShares 20+ Year Treasury Bond ETF [TLT], which tracks an index of Treasury securities with long maturities, dropped another 1.5% on Friday, after having dropped 2.7% on Thursday. It has plunged 21% year-to-date and 33.7% from the peak in August 2020. In return for this plunge in price, investors get a yield that has risen to 3.0%.

August 2020 marked the peak of the greatest bond-market bubble in US history. It was when the 10-year Treasury yield hit historic lows while our favorite hype mongers predicted that it would drop below zero and become negative. But this bond bubble is blowing up. And this is what the “bond massacre” looks like for investors who’d thought they’d invested in a conservative instrument, when in fact they’d bought a high-risk bet on the continuance of the bond bubble, a bet on long-term interest rates going negative. And WHOOSH went their money:

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Stockman: The Fed Is Not Fixing The Problem

Posted on May 7, 2022 | Leave a comment

The Fed cannot fix the enormous problem of monetary inflation it created without throwing the American and probably the global economy into a depression. From David Stockman at zerohedge.com:

Authored by David Stockman via Contra Corner blog,

The 10-year UST yield has crossed the 3% mark. So you’d think this was a sign that a modicum of rationality is returning to the bond bits.

But not really. That’s because inflation is rising even faster than interest rates, meaning that real yields on the fulcrum security for the entire financial system are still dropping ever deeper into negative territory. Thus, at the end of March the inflation-adjusted (Y/Y CPI) rate dropped to -6.4% and even with the rise of nominal yields since then it still stands close to -6%.

Here’s the thing, however. For the past 40-years the Fed had been driving real yields steadily lower, although even during the money-printing palooza of 2009-2019, the real yield entered negative territory only episodically and marginally.

But after the Fed pulled out all the stops in March 2020 and commenced buying $120 billion per month of government debt, the bottom dropped out in the bond pits. Real yields plunged to territory never before visited, meaning that unless inflation suddenly and drastically plunges, the Fed is still massively behind the curve.

The fact is, there is no chance of staunching inflation if real yields remain mired deep in negative territory. Yet if the nominal yield on the UST should rise to 5-7%, and thereby marginally enter positive real yield territory, there would be carnage on Wall Street like never before.

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