Bond Yields Reach Supernatural Levels

September 22, 2014
Tiger’s Robertson Says Bond Bubble to End in ‘Very Bad Way’

“Bonds derive their value from interest rates, and interest rates are unnaturally low today,” Marks said on the panel.

Stocks derive their value from unnaturally low dividend yields too. So his point was what exactly? Stuff the trillions in cash under a mattress in the long-term hope that it appreciates? That money has to go somewhere.

The unnatural 30-year treasury bond yield was 3.28% when that was said. Since it is now just 2.24%, it can mean only two things.

1. The supernatural vampire is determined to suck the lifeblood out of this economy's short-term savers until it is permanently satisfied. And if there is one thing I know about supernatural vampires, it is the need to feed never truly goes away, lol. Sigh.

2. Stock market investors will continue to laugh at bond market investors no matter how well the bonds do. That's just a given for those who don't understand what the "wimpy" 1% decline in yields over the past few months means over the course of 30 years.

Scratch one more bond bubble billionaire from the treasuries should be avoided at all costs camp. In hindsight, the timing of that advice was legendarily awful. Perhaps he should have factored in what the price of oil was doing, read up on Japan's economy after their real estate bubble popped in the early 1990s, glanced at a 35 year chart of treasury yields to setup a baseline for what natural means in a long-term declining interest rate environment, looked into the deposit glut of US banks, and/or studied the bond yields in the aftermath of the Great Depression. Just a hunch.

This is mot investment advice. It's actually pure unadulterated heckling of a billionaire though, and there's no telling what that's worth. I can say this. I alone got at least 99 cents of enjoyment out of teasing a financial superior and supposed market expert. Your actual return on reading investment may vary. Past giggling is not necessarily indicative of future laughter outbursts. ;)

Quote of the Day

Center for Science in the Public Interest: Litigation Project - Closed Cases

At the request of a private attorney, CSPI joined in a lawsuit against PepsiCo based on the fact that Tropicana Peach Papaya juice drink (1) contains no peach, (2) contains no papaya, and (3) is not a juice.

Welcome to peach papaya juice economy, lol. Sigh.

In all seriousness, can't you just feel excessive regulations strangling PepsiCo's bottom line? Down with all regulations! Free market capitalism for the win! Oh, wait. I said I was being serious. I meant sarcastic. Sorry about that.

Quote of the Day

January 28, 2015
Long-Term Interest Rates Have Been This Low Only Twice In The Last 214 Years

Only one other time — for about two decades following the Great Depression and through the post-World War II era — has the rate on long-term debt been so low.

Hey fellow retirees! Welcome to about two decades of post great construction bust long-term interest rates! That's if we get lucky and Japan opts to bomb Pearl Harbor, Germany invades France, and we can win World War III decisively without resorting to nuclear weapons. Somebody needs to destroy some serious industrial capacity at some point or we may never get out of this funk!

Gallows humor... it's what's for dinner (once the cat food runs out).

In all seriousness, I have built up quite the safety buffer on my prediction for 2015. In early December I claimed, with 80% confidence, that the 30-year treasury yield would stay under 3% every single day this year, in sharp defiance to the rising interest rate theories constantly told to us on CNBC. So far, so good. Knock on wood.

The Sarcasm Report v.204

Some naysayers believe that the USA is running a giant economic confidence game, much like the rest of the developed world. I say that could not be further from the truth. Just because we apparently require interest rates to continually fall over the long-term and we're currently stuck to the floor at the short end, it doesn't necessarily mean there's anything to be alarmed about. This could be all perfectly normal.

There's only one thing that would alarm me. I'd need to read a news article that tried to tell me that the only economic report that matters is the one regarding consumer confidence. Since when is consumer confidence a good predictor of future economic activity? That data's just staring right into the rear view mirror. If times were recently good, then people are generally happy. See how that works?

A confidence report is the only report that a confidence game would need to thrive. I can tell you with 100% confidence that nobody will ever suggest that it is the only report that matters. Not going to happen! So we can all just take a deep breath and sigh in relief. This economy is strong, resilient, and built upon the sturdiest of foundations. We don't need to rationalize it by ignoring all the awesome objective economic reports and dwell on one consumer confidence report in their place. That would be crazy talk for an economy as strong as ours.

January 27, 2015
Only One Of Today's Flood Of Economic Reports Really Matters

The market is freaking out over the slew of negative economic data this morning, but let's be real: that great consumer confidence report is the only one that actually matters.

Oh f%#k! It's the g#%^**% f%^king end times!! Why didn't someone warn me?

Hey. It isn't as bad as I thought. This person claims the market is freaking out. Well, I just checked the market and everything seems pretty good to me. That's right. Treasuries are doing fine. Oh, wait. Do you suppose the person meant the stock market? Should have been more specific. I know that many seem to think there's just one market but this only adds confusion and fear for those who know there are more than one. Confusion and fear cannot stop a panic. I thought everyone knew that.

Freaked me out big time to think that the only market that matters to me was freaking out. I almost dumped my long-term inflation protected treasuries and piled into the safe haven that is the USA stock market. Only goes up I'm told. There are no other safe alternatives.

Quote of the Day

January 27, 2015
MORGAN STANLEY: The Fed Isn't Raising Rates Until March 2016

Based on our outlook, a rate hike as early as the Fed's mid-2015 guidance looks increasingly implausible.

Big shocker.

This coincides well with my long standing Murphy's Law of Fed Rate Hiking theory. The timing of the first rate hike will always be twice as far out as you think it will be.

Should you attempt to factor this theory in and therefore double your estimate, then the actual timing of the rate hike will double again as well. Murphy's Law will not be denied!

This does pose a problem for my personal estimate though. I've always thought there was a very high probability we'd be trapped in ZIRP until just this side of forever. Good luck doubling that, lol. Sigh.

Good thing we're not following Japan into a long-term economic death spiral! As we know, long-term interest rates can only go up from here! It was true heading into the 1980s and it is still true today! How will we ever break the consumer price hyperinflationary cycle? What? The price of oil crashed again? Quick! Someone alert ShadowStats! Now is not the time for them to raise subscription prices!!

For all that is holy, beware the sarcasm bubble! ;)

The Bulls in the China Shop

January 26, 2015
China Bull Market Masks Momentum Breakdown

Government efforts to cool the growth of margin loans have curbed one of the biggest drivers of the rally.

Urban Dictionary: Bull in a China Shop

What's worse than a bull in a china shop? A hedgehog in a condom factory.

But what if it is a hedge fund invested in a Chinese condom factory? Then what? Stay tuned for potential hilarity!

My Nomination for the 2015 Hubris Award of the Year

I know it is only January but I want to get my vote in early!

January 23, 2015
Bond market madness: How to profit from it

Can't you just feel what's coming based on the headline? Strap in folks, this is going to be a rough ride!

“We know higher rates are coming and it will probably be this year,” but what the market can’t predict is when. “Are you going to be able to time the bottom exactly? Who knows?”

We most certainly don't know higher rates are coming. That's what makes it even harder to time. And when I say we I really mean him and me. We, as a group, seem very divided about the future of long-term interest rates over complete business cycles. Further, I would never claim to know the future. I can only strongly suspect. Perhaps it stops me from investing in sure things, you know, like when everyone just sort of agrees that the only direction possible is up.

If everyone truly knows that long-term interest rates can only go higher from here then interest rates would already be higher. I, for one, would have sold all my long-term TIPS. Of course, that would be a problem in a world where nobody was buying them and everyone was selling. Go figure.

Another option, suggests Lydon, can be applied through The Market Vectors Treasury-Hedged High Yield Bond ETF (THHY) which shorts the treasury and is long high yield. “This actually has a short duration, very short, but a yield over 5%, kind of a neat scenario if your are looking at the treasury portfolio and saying I am not really that comfortable at this period in time because we know Yellen is going to be hiking rates.”

We do not know that Yellen is going to be hiking rates just because that's what she likes to talk about any more than we had proof that there was no housing bubble just because the lack of a housing bubble was all Bernanke wanted to talk about. Talk is cheap.

Further, I shall pass on profiting off the bond market madness if it involves shorting treasuries and loading up on high yield junk, no matter how "neat" and "comfortable" that sure thing advice seems to me.

This is not investment advice. We know this. And how do we know this? We don't. Yeah, I just told a lie. I know it isn't investment advice but how could I know that you know?  I therefore cannot speak for you. Sorry about that. Perhaps his hubristic tone is infectious.

If there's one thing we do know, it's that this sarcastic post was a joy to write. Oops. I did it again. Now we're thinking about Britney Spears, aren't we? It's uncanny how we can get inside our heads like that. We learned from the hubris master! Go us! ;)

Transportation Winners of the New World

One of the more amusing theories of the modern age is that one must own stocks because there are no suitable alternatives. Take Jim Cramer's Winners of the New World. You will note that he did not mention bonds. It was heavily implied, as is the case now, that bonds could not be relative winners of the 21st century.

February 29, 2000
Winners of the New World

So, if you can't own the retailers, and you can't own transports, and you can't own banks and brokers and financials and you can't own commodity makers and you can't own the newspapers, and you can't own the machinery stocks, what can you own?

A-ha, that just leaves us with tech. That's why we keep coming back to it. That's why, despite the 80% increase in the Nasdaq last year, we are looking at another record year now. It is by that process of elimination that I have picked my top 10.

I would like to now extrapolate this "no suitable alternatives" theory to the transportation industry.

We can't own cars. So many people die in cars each year that it has become a travesty. Death traps each and every one of them, and don't even get me started on the financial costs of owning and operating motor vehicles.

We can't own bicycles. We're now forced to wear helmets, and it isn't because bicycles are inherently safe, let me tell you.

We can't own helicopters and airplanes. There just aren't enough places to land them and parking at our local strip malls is just right out.

A-ha, that just leaves us with pogo sticks. What better vehicle could there possibly be to navigate this brave new economy's cyclical ups and downs while simultaneously getting virtually nowhere over the long-term? It is by process of elimination that I have determined the only suitable method of transportation of the new world. The rest? You can have them.

Stocks and pogo sticks for the win at any price! You heard it here first, lol. Sigh.

This is not investment advice.