Financial markets are remarkably confounding. If you’ve ever speculated on stock price movements, you know what we mean. Predicting where the market will go is hard enough. But knowing exactly when…that’s nearly impossible.
Looking back, assigning causation, and projecting forward, doesn’t do the trick. Neither does charting out wave patterns and drawing trend lines. For eventually trend lines are broken. Then what?
The point is, stocks go up and then they go down. So, too, they go down and then they go up. But sometimes times they go down and then they go down some more. For what’s absolutely the right time to buy at one time is spectacularly wrong at another. And what’s spectacularly the wrong time to buy at one time is absolutely right at another.
Take Southwest Airlines, for instance. It was last year’s top performing S&P 500 stock…returning 124.63 percent. This year, however, as of May 14, it was down 0.47 percent.
Make of it what you will. But, by shrewd acumen alone, we don’t think there were many who purchased Southwest Airlines on January 1 and sold on December 31, 2014. That would involve good luck, in addition to great guesswork.
Treasury Bubble Redux
The stock market, however, isn’t the only financial market that softens egos and humbles arrogance. Have you taken a gander at treasury yields lately? Good grief.
The 10-year Treasury note is taking on water faster than the Titanic. Yields, which move inverse to price, have climbed to 2.28 percent from just 1.85 percent a month ago. But that’s not all…
Gold’s even jumped back up and over the $1,200 per ounce marker. Oil is back up to $60 a barrel. On top of that, copper’s up to $2.90 per pound…that’s an 11 percent increase over the last two months.
If we still had our wits about us we’d say markets are signaling price inflation. But we’ve been fooled and duped by the treasury market so many times we’ve reserved ourselves a permanent seat in the back of the barn. “Fool us once shame on you; fool us twice and we’re a jack and jenny ass.”
What we mean is we’ve been predicting the imminent bursting of the great 30 year treasury bubble for over 6 years now. Every time yields jump a bit we can’t contain ourselves. We jerk our knees and conclude that it’s finally happening.
Pinching the Losers in Congress
Not that we necessarily want the treasury market to collapse. This will certainly bring on much gnashing of teeth. But we also don’t like existing in a world of suspended animation.
The way we see it treasury yields must go up sooner or later. So why not bring it on now? Let’s get the defaults over with and set the foundation for healthy, fundamentally sound growth. We’re tired of an economy lethargically wading its way through lards of debt…and vast entitlement programs that are suffocating it.
So, too, higher treasury yields will put the big pinch on all the losers in congress. This, indeed, is something we’ll relish. There’ll be poetic justice when it dawns on the masses – all at once – that the promises of something for nothing the politicians have fed them all these years are all lies.
Congress deserves to be disgraced in a big way. Higher interest rates will do exactly that. They’ll make the cost of borrowing more expensive for the federal government. Before long, just servicing the existing debt will take on a greater proportion of the budget than all other expenditures.
Paying taxes so the U.S. government can pay federal workers $400 million to do nothing is bad. But paying taxes so the government can pay the interest on the money it borrowed and already spent to pay federal workers to do nothing is downright hard to swallow. It sticks in your craw like a bristly chicken bone.
for Economic Prism