Monday, March 9, 2015

Rising Interest Rate Pressure Stymied by Falling Interest Rate Pressure

March 8, 2015
Bond Market Tells Savers: Higher U.S. Rates to Disappoint

Now, savers counting on higher rates to lift returns are being stymied by regulations designed to make the financial system safer. The rules are pushing firms to park more excess cash into Treasury bills that yield next to nothing, squeezing money-market funds that buy the short-term debt. JPMorgan Chase & Co. says demand will jump as much as $900 billion in the next 18 months, equal to about 60 percent of the total outstanding.

$0.9 trillion here. $0.9 trillion there. At some point we're talking serious money.

So much cash. So few places to put it. Have I mentioned my long-standing theory about how it is getting harder and harder to make money off of money lately? Once again, investors can pry the long-term TIPS and I-Bonds from my cold dead fingers. I continue to have every intention of holding to maturity. Treasury bond bubble my @$$.

As a side note, what would happen to all that excess cash if firms were not being forced to buy Treasury bills with it? Is there some sort of firm couch where the money would otherwise be stored? You know, some sort of firm couch of last resort? Everyone loves safety cushions! That's especially true if the cushions are packed with cash! And how about safety cushions filled with cash that also double as flotation devices? Nirvana!

Or does all that excess cash just magically vanish? Inquiring minds want to know!

In all seriousness, too much cash chasing too few Treasury bills does not a rising interest environment make in my opinion, contrary to the popular belief that long-term rates must rise due to all this money printing. Or better still, long-term rates must rise just because everyone seems to believe they should. Talk about a crowded belief trade. Perhaps the magic only works if everyone truly believes. I hate to disappoint you, but this saver remains extremely skeptical, especially concerning inflation protected long-term bonds over the long-term.

Call me silly if you will, but the idea of locking in acceptable real yields has always appealed to me. If there is one lesson to be learned from falling off the gold standard, it is that things can always get worse for savers. There is no limit when it comes to financial pain and economic oppression.

This is not investment advice.


Stagflationary Mark said...

And what is one of the best sources of economic oppression?

"Stick to short-term treasuries since rates can only go higher!"

How many years has that been said? Try about 35 so far, lol. Sigh.

Perhaps the next decade will be different. Perhaps short-term savers will make out like bandits. I, for one, won't be holding my breath though.

I could be wrong of course, but I find it hard to believe that short-term savers will ever make out like bandits again. Each recession seems to weaken them a bit more than the previous one. This last recession gave them bone cancer, a sharp stick to the eye, and a baseball bat to the gonads. But hey, it's only a matter of time before the candy appears again apparently. Patience I'm told!

mab said...

It's a bad system. It's run first and foremost for the benefit of banksters. And contrary to the claims of the Fed, the system is definitely not in the interests of the majority. That should be obvious to anyone.

That said, the recent environment for savers hasn't been that bad especially if taxes are accounted for. High rates and high inflation can be a killer after taxes.

Since 2007/2008 cpi inflation has been ~ 1%/yr. But that excludes actual housing costs which are down significantly. And over the past year there has been no cpi inflation. Zip, even with ZIRP!

As for the future, I don't expect high inflation. I could be wrong, but I just don't see where the demand is going to come from. QE? Bah! A big lie, like most msm headline items.

If the Fed keeps clipping savers for 1%/yr, they just might cut spending by 2%!!!

Push on that rope!

Stagflationary Mark said...


A greed. Um, I mean agreed.

The environment for this saver is doing much better than feared, especially now that oil has fallen (sigh of relief).

I get my taxes prepared in a week. I'm going to be near the nothing burger tax bracket which is just fine by me! Not only does it help preserve my purchasing power, but looking so poor on paper means the health care subsidies kick in big time.

I almost feel guilty about it, but hey, not that guilty. It's not like I flew to DC in a private jet to beg for bailouts. I'm just sitting at home minding my own business for the most part.

And when I say minding my own business, I don't mean that I've fired my workers and outsourced their jobs. It's a figure of speech! I'm in the business of heckling the dismal science. It doesn't pay well but I often find it rewarding.

Siegel's Great Bond American Bubble

See? Just made myself giggle. ;)

mab said...

Like you, I spend sooooo little. The family thinks I'm frugal (cheap), but I don't see it that way.

I enjoy quality to a point but despise quantity. I also value simplicity.

I would never buy myself a bottled water. A complete waste of money imo. I do re-use the plastic bottles though. I fill them with tap water.

Unlike you, I do frequent restaurants. Typically byo. And almost always some type of ethic hot and spicy joint with food I could never cook myself. The bill is almost always under

$50 for two people with apps and entrees once a week is well within my means. A 20% tip goes a long way too! Most of the places I frequent give me free tastings.

Too many "cheapskates" like me and this economy just couldn't function. There certainly would be the likes of Coach and Starbucks.

Heck, I love coffee. I grind beans an brew each cup myself. Talk about quality! All for a fraction of what Starbucks charges.

Stagflationary Mark said...


Best wallet I ever bought is a black leather Swiss Army one I purchased about a decade ago online. It was extremely cheap but still looks and feels brand new. The quality is holding up very well.

No desire to buy one at Coach. I can't think of anything they could do to improve upon it at any price. Of course, it wouldn't be just any price. The price would horrify me.

But hey, I guess if people have money to burn and they are in a job where the look of one's wallet somehow relates to the perceived quality of the employee then perhaps that is the niche that Coach fills.

I take comfort in knowing that the employees with the best perceived wallets will make it to the top and become the most successful, regardless of competence.

Or maybe I don't. That might have been sarcasm. In fact, I might have just described Congress, lol. Sigh. ;)

mab said...

In fact, I might have just described Congress

Democracy is the best system. And voting is critically important - representative government and all that.

Am I being sarcastic? No way. What could be better than giving people the right to vote for cheats, liars and bought-off stooges?

And we're a peace loving country too! Heck, our current President even won a Nobel Peace Prize. Or is it a Piece Prize?

Stagflationary Mark said...


Or is it a Piece Prize?

Of course! Or should I say main course?

It's the piece de resistance!

To Serve Man! It's a cookbook! It's people! It's a total crock pot of human s#%^!

Mission Macaroni Accomplished!

Or should I say mission macaroni accomplice'd? Because man, I thought torture was a war crime!

mab said...

I thought torture was a war crime!

It is, but not when we do it! It's part of our Peace Meal (in)justice system. All designed to serve man(kind).

Red state, blue state, police state, fleece state. It's all good.

Stagflationary Mark said...


Dr. Seuss? Almighty Zues!

The Wells Fargo-noughts!
The golden fleece state!
A gift of profit, see!
Mount Olympus? Barely knew Her(a)! Badum ching!

mab said...

Blessed are the cheesemakers:

It's not to be taken literally, it can be applied to any manufacturer of military products.

Stagflationary Mark said...


Things break. Don't they?

Monty Python - Army Protection Racket