The relentless march to more Fed cuts and record low bond yields continues its merry way.
Yields are down again today.
Line in the Sand
I seem to recall a “line in the sand”.
Where was it? Wait, I remember.
Flashback May 28, 2018
Please consider Hello Treasury Bears: About That 3.0% Treasury Yield Line in the Sand
My Comment at the Time
Note to Bill Gross, MarketWatch, the Edelson Institute, the Financial Times, Jeffrey Gundlach, Heritage Capital, and numerous other forecasters not caught up in that precise search: The is no such thing such as a line in the sand that when breached cannot be crossed back.
Technical lines in the sand are one thing and fundamentals another. This is not like nuclear war which cannot be reversed.
The same people have been calling for the the end of the bond bull market for a decade. Perhaps they have it right, but the fundamentals suggest otherwise.
The economy is slowing and the Fed is hiking. The stock market is likely headed for another bust. There is a new worry in Europe. China is slowing.
Yes, we have late stage inflation, but so what?
There is no magic line in the sand. Neither the economy nor the bond market work that way.
Treasury Bears Take Note
Pimping the Mid-Cycle Adjustment Thesis
Yesterday, in a speech called “Sea of Change”, St Louis Fed President James Bullard pimped the “Mid-Cycle Adjustment” Thesis in which supposedly there may not be any more rate cuts this year.
The Bond market vehemently as do I.
Trump’s Reckless Tariffs Worsened the Global Problems
Yesterday, I noted Trump’s Ignores Advisors, Doubles Down on Failed Policies, Kudlow Won’t Comment.
A Global Manufacturing Recession Started and Trump’s China Tariffs Made Matters Worse.
The situation came to a head when the US Treasury Declares China a Currency Manipulator Under Orders From Trump
Hello Treasury Bears
Let me make it simple: It’s the debt, stupid!
The global economy is choking on debt as central banks are determined to have more of it.
Inflation? Forget about it. The bubbles are proof we “had” inflation. The Bond markets says something else is coming up.
Mike “Mish” Shedlock
As your friend Max Keiser often says, you can’t taper a Ponzi scheme.
When the investing world is that certain about something, the trend is about to reverse.
Mish, what does the acronym FF stand for?
I guess it must be free falling.
Federal funds, my bad.
“What is that something else that is up Mish?”
Deflation, as I define it. A credit bust in which the value of credit on the books of bank declines.
I also expect a small amount of price deflation, especially if one counts actual home prices, which I do
Any bets on when the Fed skips bonds and starts buying stocks?
Still, holding cash in a safe depository is better than letting the govt eat your principle. If the fed buys all the negative interest rate bonds it could be a way to conceivably reduce the govt debt but it would screw up the fed balance sheet as their net assests would be worth less than what they spent to purchase them.
Holding cash in a safe deposit box or in a mattress is not an option for institutional investors. To a large extent, neither is Gold because the market is just too small relative to what they have to invest.
I suppose if gold went to ~$45k per ounce that would balance paper debts of about $250T, but will that ever happen?
The something else – deflation – as I define it – a credit bust with likely falling prices if one includes housing (and I do)
What is that something else that is up Mish?
I think I agree, something is up, but I dont know what. The thing I cant quite get is all those bonds with negative interest rates. Unless there is a large cost to holding cash, then negative interest rates make no sense unless the buyer is the state and crooks are in charge of other people’s money, or crooked people in the state have created laws that force some market participants to buy things even when they should walk away.
If I make the assumption that the cost of holding cash is low, then I cant see how the bond holders are going to lose money if they are holding negative rate bonds. There cannot be an endless supply of greater fools. Negative interest rates make no sense as a logical trade. Even if rates dont rise very high, say lower than positive 1%, losses will be taken when interest rates go positive, and those losses will be painful. There is though, a good chance of a stampede out of bonds when the market realises the madness of accepting to interest rates that fail to reflect the risk of inflation and full repayment. Even if there are no inflationary forces, the fear of further bond price falls if and when they start to happen, could be spectacular. I can see why gold is doing well.
Negative Interest rates on government debt make sense ONLY if a TOTAL financial system implosion is imminent. You lose a relatively small amount of capital, but avoid being completely wiped out. Something to think about….
Bam_Man,
but isnt cash better than a negative interest rate? Remember bonds at negative interest rates must have a high/very risk of capital loss if interest rates rise. Cash doesnt have that risk. There is no counter balancing chance of bond prices rising to balance that risk, so cash is by far the better option of the 2, assuming little cost to holding cash.
These are not individuals purchasing negative interest rate government bonds. It is institutions (pension funds, insurance companies, hedge funds), with large amounts to invest. Cash (and even to a large extent Gold) are not viable options for them.
I wonder about the viability of holding cash. With most of it being electronic in nature these days, how hard can it be to store at a bank? As the negative rate grows, someone will surely find a way of allowing big institutions to hold cash instead for a charge perhaps, but a lower overall cost than negative rate bonds.
Especially with respect to European banks, there is significant risk of a depositor “Bail-In” if there is a financial crisis and you exceed deposit insurance limits.
Negative interest means that the bank central or private charges you to hold your cash. For example, a bank pays you %.2 on savings but charges you %.3 to hold the your cash. Even with inflation at zero you get a negative %.1 on your money. If inflation is larger than zero then even worst. The idea is to force you to spend instead of save.
As Mish has said many times in the past, a bank may want to lend but people may not want to spend.
BTW negative interest showed first in Europe because they tend to save more than americans.
The only way to avoid this while holding cash is a big mattress.
“Inflation? Forget about it. The bubbles are proof we “had” inflation. The Bond markets says something else is coming up.”
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Class DISMISSED.
Well Done
All in preparation for first ever NIRP in North America and biblical levels of fresh (overt)money printing,QE4 will be massive,over a trillion a month ,if the govt near complete collapse look for the fed IMF along with the fed to take control of the treasury forcing president Chump out and installing a receiver or a puppet regime.
Yep. For years I knew endgame (for this go round) was NIRP + $10 trillion balance sheet.
Bill Gross?
Some “Bond King”.
He’s been wrong for YEARS.
Lacy Hunt is the real “Bond King”.
And whomever won last week, is now the real lottery king….
The increase in property taxes which I guess are not included in govt inflation numbers apparently are imaginary costs to those of us with wallets. I suppose the Labor Dept figures the inflation will eventually come thru in higher rents and higher store prices. That aint gonna happen when stores and landlords cant raise prices cause their competitors will underprice them. Fakery on top of fakery.