Friday, December 5, 2014

Quote of the Day: "We're seeing a bubble bursting in the bond market."

October 21, 2002
Bond bloodbath: more to come?

"We're seeing a bubble bursting in the bond market," said bond market strategist Jim Bianco of "It was way overdone; there was really no justification for bonds being at [such a low] yield."

Click to enlarge.

Contrary to the long-term public opinions of some bond market bubble strategists from 2002, 20-year treasury bond yields are currently experiencing a 50% off sale. Just in time for the holidays! Every shopper loves a bargain!

I've said this before and I'll say it again. It is my strong opinion that a highly indebted economy cannot tolerate higher real interest rates. The more debt we build up, the lower rates must go, lest the wheels fall off. That's what we've seen. That's what we'll continue to see. It's just basic math.

We don't really need the Fed to decide this for us. Money cannot really leave the bond market to bid up the stock market, for if it did then bond yields would rise and the economy would choke. And what happens when the economy chokes? Money flows right back into the bond market. It's an economic "death spiral" I tell you.

If I am right over the long-term, then we're stuck in ZIRP until the cows come home. The good news is that they are currently touring Europe. The bad news is that they're finding the living conditions there more than a bit hostel.

This is not investment advice.

Source Data:
St. Louis Fed: 20-Year Treasury Constant Maturity Rate


CP said...

Stagflationary Mark said...

Yeah, I saw your links.

Bill McBride at Calculated Risk is going all in on long-term optimism, as if any of this growth we've seen is even remotely sustainable.

Time will tell.

CP said...

"These young workers are well educated and tech savvy."


Stagflationary Mark said...


And the future is bright for those with the right information! ;)

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