The once mundane realm of government bonds has suddenly captured attention. Recently, a notable shift has taken place within the credit market…
It might come as a surprise, but interest rates do not always trend downward. In fact, there are moments when they rise.
“In the past six weeks, benchmark 10-year U.S. Treasury note yields have climbed to 2.19 percent, up from 1.60 percent at the beginning of May,” reports Reuters.
“Consequently, the market has experienced significant outflows from bond funds and a noticeable decline in interest for Treasury bond auctions. This outflow of funds, alongside rising volatility, raises concerns about market behavior as the Fed attempts to reduce its extensive monetary stimulus to the U.S. economy.”
Our prediction is that as the Fed begins to taper, interest rates are set to rise significantly! Continue reading
A few weeks ago, a DOW of 16,000 seemed inevitable—it was practically a guarantee. Now, the DOW fluctuates wildly, oscillating around the 15,000 mark. What’s happening?
From our observations, anxiety is palpable in the markets regarding the efficacy of central bankers in managing interest rates. After more than five years of a near-zero Fed funds rate and 10-year Treasury yields hovering around 2 percent for almost two years, the realization that this situation cannot persist indefinitely has begun to take hold. Even Alan Greenspan is addressing it.
Perhaps the economy is finally on the mend and no longer requires such extensive monetary support. Alternatively, we could be on the brink of a massive devaluation. Regardless, interest rates will inevitably rise. But what are the potential repercussions?
Undoubtedly, asset prices have been inflated due to ultra-low rates. Take the housing market, for instance; low rates initially softened its decline, followed by a rise in prices.
So, what might happen when rates adjust to 4% or even 6%? The straightforward conclusion is that with rising rates, prices will inevitably fall. Continue reading
On Friday, former Federal Reserve Chairman Alan Greenspan shared his thoughts on the risks posed by quantitative easing and artificially low interest rates. He also pondered how we might reverse the damage already done.
Below is a selection of his remarks…
“The sooner we confront the excessive level of assets on the Federal Reserve’s balance sheet—an imbalance that everyone acknowledges—the better. There’s a general assumption that we can afford to wait indefinitely before making decisions about when to act. I’m not convinced the market will be so accommodating.”
“It is not merely a matter of when we start tapering, but when we actually reverse course. The markets may not grant us the flexibility we desire for this transition.”
The distinction between tapering and reversing is akin to the difference between merely slowing the increase of new debt and actively repaying existing debt. At present, the Federal Reserve generates $85 billion a month—out of thin air—to sustain the credit market. Continue reading
Beware the Jabberwock, my son!
The jaws that bite, the claws that catch!
Beware the Jubjub bird, and shun
The frumious Bandersnatch!
— Lewis Carroll, Jabberwocky
One Scratch Below
Every day, more truths emerge. For instance, the St. Louis Federal Reserve recently disclosed that American household wealth has plummeted by approximately 55% since late 2007. This striking statistic sheds light on the ongoing struggles facing the average worker.
“From the third quarter of 2007 to the first quarter of 2009, household wealth dropped by $16 trillion,” reports The Dallas Morning News. “By the end of 2012, American households had collectively regained $14.7 trillion.
“However, after adjusting these figures for inflation and averaging them across the U.S. population, the outlook remains bleak: The average household has only regained 45% of its wealth, according to the St. Louis Fed.” Continue reading
