It’s been a tough year for US Treasury bulls. The rally that began in late April on hopes of Fed rate cuts is mostly gone. The continued rally into May is gone.
Yield on the 10-year treasury is 4.59 percent on May 29, right where it started the month. A quarter-point rally on hopes of rate cuts vanished today.
Yields are still lower than the 2024 intraday peak of 4.74 percent, but they are nearly 70 basis points higher than the start of the year as rate cut after rate cut hopes keep getting priced out.
No Need to Hurry Rate Cuts
Minneapolis Federal Reserve President Neel Kashkari says he wants to see “many more months” of positive inflation numbers before interest rates start to come down — and refused to rule out a rate hike if needed.
Comments like those are taking a toll. Yet the economy has been weakening.
Confused?
New Home Sales Huge Negative Revisions
New Home Sales plunged in April. And the Census Department completely revised away the fictional 8.8 percent rise in March.
For discussion, please see New Home Sales Sink 4.7 Percent on Top of Huge Negative Revisions
Discretionary Spending Tumbles at Target
On May 22, I noted Discretionary Spending Tumbles at Target, Shares Drop 10 Percent
Target CEO Brian Cornell said the results show “continued soft trends in discretionary categories.”
The interesting word above is “continued”.
EVs Hit Brick Wall
The Inflation Reduction Act provided stimulus for a while, but it also caused the auto manufacturers to gear up for cars that few want now.
EVs have hit a brick wall. IRA stimulus has gone into reverse.
On April 2, I commented Tesla’s Deliveries Drop for First Time Since 2020, It’s Demand Not Supply
On April 15, I noted Elon Musk Fires 10 Percent of Tesla Workforce, Prepares for “Next Phase of Growth”
On April 26, I noted Ford Loses $132,000 on Each EV Produced, Good News, EV Sales Down 20 Percent
And repetitive minimum wage hikes are now pressuring restaurants into layoffs.
The Fed’s Big Problem
On February 20, 2024 I noted The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate
Those renting and looking to buy a home are very angry at rent prices up at least 0.4 percent for 32 straight months while home prices are the least affordable in history.
No one wants to trade a 3.0 percent mortgage for a 7.5 percent mortgage so the housing market is essentially locked up.
Is the US in Recession Now? Two Prominent Competing Views
Housing is locked up, EVs are a disaster, consumer spending is weakening, and some think a recession has already. started.
Yet, here we are.
For discussion, please see Is the US in Recession Now? Two Prominent Competing Views
Private debt to GDP is not near the GFC levels, so despite everything, a crash remains elusive, just anaemia.
Since they are lying about Everything, and we know that “remember truths are much easier than remember fibs” – – this is what we end up with: COMPETING and INCONSISTENT ECON NUMBERS.
This is election year amplification of the lies. THEY ARE LYING, and yet everyone HAND-WRINGS over these lies not lining up well over time.
The ECON REVISIONS game in on. The PROPAGANDA machinery is working at 200%. In the meantime, citizens are going broke and ending up in the streets.
And, on top of it: we are funding wars.
One can focus on the negatives, the positives or both.
Yes, Q1 24 EV sales are down from Q4 23, but up from Q1 23. In addition EV sales are a small percentage of total auto sales. Q1 total auto sales are up over 5% from Q1 23. All manufacturers overall sales are up.
In addition 75% of the 1300 companies that reported earnings so far have surprised to the upside, with earnings up 4.4% overall.
Every day brings new positives and new negative. The market moves up and down like a yo-yo. Which provides an opportunity for those of us who like to trade the swings.
I am enjoying the results from many of the oil and gas companies I own. Lots of free cash flow going to paying down debt, buy back shares and increase dividends.
You own shares, not the company; it’s not clear why you are coming on here to blow so hard.
Odd post. Bond rates rising mixed with economy weakening. Two contradictory views presented as the same. Are you claiming the bond market is wrong and long rates should be falling?
As long as China, Japan, and Korea feel compelled to sell, that will stymie and delay the inevitable fall in rates.
$1.2 trillion in Federal Government annual interest payments coming due by election day.
That is going to be fun to explain.
Not to mention theft of Russian treasury bonds based on politics. Not to mention the incumbent abusing the legal system and intelligence agencies to go after opponents. Imagine if Nixon had behaved as badly as Obama, much less even worse like Biden.
Yeah, behave like a third world banana republic – but expect to borrow as if the government were law abiding and still solvent.
Buy Bitcoin and Gold.
What with up to 10% of the populations of the USA and other developed countries being illegal immigrants, they are tangibly being transformed into developing world economies with all the concomitant corruption and other failings.
but but but… my AI bubble stonks need rate cuts!!!!!
what is this bond market thing? how do we kill it?
someone please save my stonks!!! i bought all the things cuz i’m super-smart!!!
it’s not fair!!!!
The Fed is going to have to raise rates. I predict before the end of the year.
I am on vacay and was speaking with elderly person about property insurance
and she made comment about shopping for new company after 40% increase premium
and settled for just 25% increase
I laughed and said ‘we settled-ie happy’ that it was just 25% higher
I then mentioned owner 12 unit apartment in Tucson just got new insurance after being dropped
2023 was $4k – 2024 —- 2 quotes 1 for $16k other(we took) for $12k
no choice had to have insurance since he has mortgage
Insurance rates aren’t coming down. Labor costs will keep premiums elevated. Claims have also increased.
Maybe-They can’t clear the market at prevailing rates. Maybe we will see ten trillion in qe. lol
The Fed doesn’t raise anything, it follows the bond market, and that’s driven bigly by China and Japan.
I suppose the bomb is in Japan bonds, its goverment is near an Argentina moment. Japan can print money and fuel inflation, slash public expenditure… or default.
Inflation is default, just via another means.
If it wasn’t for a bunch of manipulated statistics, we’d all realize that country has been in recession for over a year …
The trillion dollars of new debt every 100 days is hiding the rotting corpse …
Reminds me of The Picture of Dorian Gray
Buying a falling, failing and ever insolvent empire’s debt, where there is NO risk premium built in to the yield, is just foolish.
At this point in history, where congress is openly looting the treasury, I wouldn’t and won’t touch any of the US Govt shitdebt until yields hit at least 8% and probably closer to 10%
END THE FED
Do you think that China’s level of debt is sustainable or do you think that they exist on a plane on which we mere mortals cannot obtain?
The world’s governments are a shit sandwich of debt and compared to them the U.S. doesn’t look bad. Compared to US historical we look terrible
Like picking which whore to bed knowing they are all diseased and full of STDs.
I choose abstinence
China became uninvestible when Jack Ma and other company CEOs and entrepreneurs started disappearing. I honestly haven’t paid an ounce of attention to China since then
I love it.
According to the rule, that is the time to pour your money in.
China’s additional problem is demographic and the loss of motivation of the young to work.
As the economy fails to deliver growth for most people it has become very singular in who it does deliver for.
This top 10% accrues the wealth of the Nation while everyone else lives in survival mode.
Accompanying wealth centralization carries with it Centralization of Debt accumulation.
Average consumer has about all the debt they can handle and struggle to meet obligations. They do not have capacity to increase Debt burden.
This leaves the Top tier highly susceptible to financial implosion as their wealth is concentrated in those assets comprising a financialized economy. This Financialized economy is based upon continual debt creation to sustain itself.
Inflation expectations and Debt servicing remains key driver of Treasury higher rates
Higher Treasury rates forces even the Best non governmental borrowers to scale things back.
Fed is waiting for something to break as they have gotten out of the lead the economy by a nose ring business.
Fed is back to a follow the economy before acting policy stance.
Markets are Bullish betting that the music can never stop.
However as soon as some expectation for performance fails to be met the drop in value for that said entity is sudden and deep. there is no wait and see Bullishness. It is sudden death of valuation.
All this adds up to Fragility and instability for the 10% who have highly concentrated wealth in paper assets. The economy has been experiencing a prolonged bout of inflation and now has entered the followup which is stagnation period.
This mornings Mortgage Bankers Association Mortgage Market Index demonstrates just how weak Housing borrowing is currently. It has been holding at levels not seen since prior to year 2000. This flatlining since start of 2023.
In 2020 index was holding above 800 level as compared with 200 level it has bounced around since 2023 began. That is 25% of where it had been four years ago.
There is good reason to call what is happening a Malaise as it certainly is. Happy talk does not cover for the deep Rot in this economy.
Those renting and looking to buy a home are very angry at rent prices up at least 0.4 percent for 32 straight months while home prices are the least affordable in history.
–
This is what happens when you keep giving tax loopholes to real estate. A corporate AMT would free up housing prices to decline like they should because real estate investors could no longer chase prices upward and still get a tax cut on the asset. Sure people would still invest but there would be no way to avoid taxes on it. The Covid loopholes for real estate never got closed.
Making real estate tax friendly is a benefit of investing in real estate. The housing supply will only increase when developers trust the government not to pick winners via rent moratoriums or removing tax incentives as you suggest.
And what mythical COVID loopholes for real estate are you referring to? I’m assuming you are living on planet Earth so if you’re on Mars please excuse my post.
Sounds like a good explanation to me.
When we sold a relative’s property recently, the only offers were from cash investors. Wondered where they all came from.
The Chinese don’t want to lend billions so Washington can build an aircraft carrier to use against the Chinese…
The Saudis and the Chinese have realized that if Biden can steal Russia’s money over politics, then Biden could steal Saudi or Chinese money next.
After decades of one time emergencies, just this one splurges, and perrenial “we’ll balance spending next year” … creditors are starting to think Washington has no intention of ever repaying anything.
The stunning part is that the so-called leadership in Washington find the above to be a surprise. Biden, McConnell, Schumer, Pelosi and Yellen are senile — what excuse are the rest of them going with?
Common misconception is that the US needs the Chinese to buy our bonds. We don’t. Second misconception is that we should be ok with Russia stealing Ukraine’s money, territory and resources and that when we confiscate by due process Russia’s money to give it to the Ukraine to help them resist Russia’s invasion that is somehow stealing from Russia and should not be allowed.
We don’t have the savings pool of Japan, so yes Doug we do NEED foreigners to buy US Treasuries. It doesn’t have to be China, but it needs to be someone (actually a lot of someones) with a spare $40 trillion. Its stupid of you to suggest the largest savings pools in the world are not important to financing Washington’s spending largess.
This is math Doug, not politics. Quit acting like a dumb Frenchman.
PS — Ukraine is an invention of Nikita Kruschev. It has been a battlefield for the Russians, the kingdom of Sweden, the Ottoman empire and the Hapsburg empire (aka Austria-Hungarian empire) for centuries.
Kruschev created a pseudo-country out of a battlefield to secure his Soviet premier status in Moscow. Ukraine is not a real place, check your history.
Russia didn’t steal Ukraine’s money, it sent troops into Ukraine. Check your facts French man.
The US is not a party to the Ukraine battlefield. We are not a neighbor, we have zero interests there. Biden took bribes from Bursima holdings, and George Soros was hoping to corner the natgas supply into Europe. Both of those criminal activities have nothing to do with any US interests.
If you want to whine like an idiot about someone stealing money from Ukraine, whine at Biden and Soros.
Russia has always made it crystal clear that foreign powers will not be tolerated on their southern flank. Exactly the same thing JFK said to Russia about Cuba.
Biden is in the wrong about Ukraine… or more to the point Jake Sullivan and Vicky Nuland are in the wrong, with Soros and Biden taking bribes.
Jesus Doug you are a fucking idiot.
Taxpayers of the USA don’t want to get robbed to pay for corrupt politicians, and its stupid to think Russia would behave differently about Donbass and Crimea than the USA did about Cuba.
You are a fucking idiot.
yeah, but…what do you really think?
I suspect you are trying to lighten the mood… but I won’t let you forget that millions of real people are going to suffer because of this stupidity.
We constantly get stories of some middle class family that played by the rules, saved their pennies, tried to do the right thing… but then they get fucked by corrupt politicians and dim witted losers who supported the looting.
Is it funny when a family gets evicted and made homeless? Is it funny when the parents get divorced? Is it funny when children grow up in poverty?
The USA used to be the country that the poor and middle class all over the world wanted to move to, to have a chance at a better life.
When you read about all the middle class Americans who’s retirement savings were decimated, we’ll see who tries to lighten the mood then
Willie, I don’t think you have any experience with international bond markets outside of buying an international bond fund for individual investors so you are like a dog watching TV.
Second, I am not French although I live in France and have lived in several different countries.
Thirdly your historical view of Ukraine is pure Russian so I really expect that you are not American but a friend of FromBrussels who is actually not from Brussels.
Fourthly, your grasp of economics micro, macro and international is superficial. Your claim that we need the Chinese buying our bonds to finance our deficit shows your lack of understanding of finance. You are clueless.
Doug you are a fucking idiot in France. You are a fucking idiot in the USA. You are a fucking idiot in any country you visit or live in.
Your inability to balance a ledger, to grasp how big $40 trillion is in relation to global savings….
Fuck you. It doesn’t matter if you were born in France, you think like a Zimbabwean.
You have already shown your ignorance and now you show your stupidity.
Russia will be taking historical Novorossiya and there’s nothing the United Snakes can do about it. The United Snakes needs to stay in its own hemisphere.
Europe doesn’t belong to you. It never has and never will.
Hi Willie. My grandfather came over from Ukraine in 1900. He was a proud Ukrainian who passed on his heritage to his children and grandchildren. He never heard of Nikita Kruschev, until 1958.
I suspect he would take great offense at your comment.
The extremely low rates we experienced between 2008 and until recently were an historial anomality and going back to the rates that are historically normal is very good and economically healthy. At these rates, only those projects that can generate a return high enough to be worth it will be financed. Projects that need zero rates will not be financed by debt and that is a collective good.
Suggestion for a future post, Mike. Take a look at insurance company asset portfolios, and connect their losses on bonds and commercial real estate with rising premiums.
There will be no rate cuts till 2025, but in the meantime my retirement account is making the 4.6% guaranteed rate provided by the 10 year bond. I hope all bonds crash — which I believe is the only real example of debt deflation.
Not just some temporary feel-good “crashing-lite”; but indeed crashing to the point of systemic, irreversible default of near; or absolutely; everything, is the only way to get out from under the current society destroying inflation and debt. Any debt not repayable in specie at $20/oz; at a time where everyone else is also bidding for specie to cover their own debt; needs to be defaulted on in order to get back to sustainable growth. And that’s a lot of debt.
The wealthy who own this country more and more everyday will never allow anything like that to happen.
Which is yet another reason why anyone even remotely sentient not only does, but indeed trivially obviously does, support it. All that is preventing it, is just economic illiteracy and straight up stupidity.
Yet stocks keep marching higher. Hmmm…
After Dec 2021 US30Y took off like a rocket with a few stops for refueling.
Breadth and momentum are falling, but the bond massacre isn’t over. It will take time
until US30Y enters recession territory.
If you put $2 million in risk-free 13-week T bills, continually rolling them over, you’d make about $100,000/year. No risk. Doing nothing except sitting on your butt, smoking fat cigars.
But I don’t have a pot to piss in. Thus it isn’t helping me.
Are you a man? If so, the world is your urinal, my friend!
Why not? On what did you blow all your money?
2 million? A wife and kids. You know, real world stuff
While paying 20-40% in taxes; plus losing ~5%/year ($100K) in value (inflation).
Still better than US10Y; but worse than NVDA (to the moooon).
Not sure you would enjoy life that much after doing some proper finance + tax math. Yes, you get a 5 percent nominal interest. But out of those 100K interest, 70K are compensating you for inflation. And if you are in reasonably high federal income tax bracket (likely given your $2 million), say 35 percent including investment income surcharge, you are going to pay 35K to Uncle Sam. All together, you lost 5K on your brilliant investment in T Bills. Enjoy the cigar!
Silly Albert. If you have $2 million laying around to invest in T bills, you don’t need to work.
The point I am making is that most people are losing money investing in T bills at 5 percent. If you happen to have $2 million laying around with no other incomes, good for you. But you will still pay some tax on your 100K T bill interest, and you are not going to enjoy fat cigars for too long if you have other expenses.
US30Y might rise > Oct 2023 (C) at 5.097% for DM #13.
The bond market has become a great short term trading vehicle. Its really not supposed to be like that.
Please tell me what the bond market was supposed to be?
Pre Fed: A means for government to temporarily spend above current revenue; on the theory that some government projects ultimately will pay for themselves, but the payback time is longer than the current budget year.
Post Fed: A means to redistribute wealth; from productive Americans and enterprise, to idle connected leeches close to and; critically; wholly dependent on The Fed. The latter, 1st order, comprise of government; as well as of the leeching classes from purely extractive “financial”, as well as increasingly also “legal” “sectors.” Higher order; it by now also comprises of those dependent on spending by the immediate, 1st order, theft beneficiaries: Anything from NYC and other places “luxury” peddlers; government contractors, in the MIC, public unions and elsewhere; yahoos feeding off the “real estate” theft racket etc.,etc.
MOVE Index. You’re a smart guy, figure it out.
Higher still needed.