Wednesday, June 12, 2013

The Long Term Perspective on Interest Rates

In 1981, the interest rate on 10-year Treasury notes  was over 14%, currently the yield is just over 2.20%.

Click chart for larger view.

Even in the late 1980s, it was difficult to get investors to understand how much lower rates could go. We are now in the opposite situation. With the Fed leaning on rates, they are climbing, can you imagine what is going to happen when the Fed starts to "taper." It won't be pretty for bonds. 


  1. It won't be pretty for the budget either. I suspect the CBO and the OMB made wildly optimistic assumptions about interest rates when they estimated deficits in the coming years.

    It doesn't take a math major to figure out what awaits us. Every increase of one percent means another $170B (the debt is currently $17 trillion) is tacked on to the deficit, which is twice the size of the dreaded sequester!

    Imagine if rates reverted to the mean, let alone where they need to go to restructure this phony economy. It would mean debt service approaching $1 trillion per year. It would be Armageddon.

    America's choices: Default or hyperinflation. Pick one.

  2. On Wednesday June 12, 2013,the Interest Rate on the US Ten Year Note, ^TNX, traded higher to 2.23%, pushing the 10 Year US Govenment Bond, TLT, down below support. Both Junk Bonds, JNK, and Aggregate Credit, AGG, traded strongly lower again today.

    The chart of the EUR/JPY, seen in FXE:FXY, showed a tiny trade higher, on the Euro, FXE, trading slightly higher, and the Yen, FXY, trading slighly lower. The Acton Forex EURJPY chart pattern with close at 129.243 suggests a massive unwinding of this currency carry trade is imminent.

    World Stocks, VT, and most all stocks gapped open higher and fell all day producing a red filled candlestick, sometimes called Red Filled Elder Bar Chart Pattern. World Stocks, VT, and US Stocks, VTI, traded lower to the very edge, that is the precipice of support. Not a single equity ETF traded higher today, And the only credit ETF trading higher was Emerging Market Bonds, EMB, which have been selling massively lower lately.

    Paper Producers, WOOD, traded lower on a lower price of Timber, CUT, with Biotechnology, IBB, Semiconductors, SMH, Clean Energy, PBD, US Infrastructure, PKB, Retail, XRT, Internet Retail, FDN, Global Industrial Producers, FXR, Dynamic Media, PBS, and Small Cap Pure Value RZV, trading lower as well.

    Investment Bankers, KCE, such as JP Morgan, JPM, Asset Managers, ASMA, such as Blackrock, BLK, the Too Big To Fail Banks, RWW, such as Cititgroup, C, traded lower. Regional Banks, KRE, traded lower, taking the US Small Caps, the Russell 2000, IWM, lower.

    Countries trading lower included Thailand, THD, and China, YAO, on lower China Real Estate, TAO, and China Industrials, CHII. Spain, EWP, traded higher, but Greece, GREK, and Italy, EWI, traded lower. This as Ambrose Evans Pritchard writes Italian showdown with Germany over euro looms closer. Mexico, EWW, Brazil, EWZ, EWZS, Singapore, EWS, EWSS, traded lower. And Egypt, EGPT, literally collapsed, falling 4.0%

    All of the Yield Bearing ETFs, traded lower today. Preferred Financials, PGF, fell strongly lower. And Small Cap Real Estate, ROOF, Mortgage REITS, REM, Industrial Office REITS, FNIO, Residential REITS, REZ, and Premium REITS, KBWY, traded lower on today’s higher Interest Rate on the 10 Year US Government Note, $TNX.

    The chart pattern of Oil, USO, traded higher to strong resistance at 34.03, like that of World Stocks, VT, and US Stocks, VTI, portending a likely strong drop tomorrow or later this week. Bespoke Investment Group writes Crude oil and gasoline inventories rise more than expected

    Volatility, ^VIX, TVIX, rose in an Elliott Wave 3 breakout. The market Risk Off ETN, OFF, reads positive, warning investors to be out of long positions.

    The Yahoo Finance ongoing one month chart of Utilities, XLU, Real Estate, IYR, and Closed End Equity and Closed End Credit Funds, CSQ, PTY, AWP, PFL, RCS, and EIM, shows that the Interest Rate Sensitive Investments have taken a massive trade lower.

    Trading today in Closed End Funds, CSQ, PTY, AWP, PFL, RCS, and EIM, was decisively lower. Closed End Debt, PFL, traded very strongly lower, and Closed End Equity, CSQ, traded strongly lower, showing that the way is now lower for both credit and equities.

    I am left with a feeling that a massive turn lower in the stock market is imminent. All I can say is “lookout below!”

    The financial market action that is seen today is Jesus Christ acting in dispensation, that is in administrative management of the household of God, Ephesians 1:10, fully completing Liberalism’s democratic nation state, banker regime, and the age of investment choice, and introducing the Authoritarianism’s regional governance, totalitarian collectivism, beast regime and age of diktat.

  3. The USG is effectively in a debt limit max situation. The USG cannot add more debt, only shuffle things around, until it votes to raise the limit which won't happen until September. Because of this, the Fed is tied as to how much debt it can add to the system. Since they set rates via quantity, if the quantity added is limited, then rates will go up. This is only a short-term increase since once the theatre is performed and the debt limit increased in September, the rates will change direction and so will the stock market.