Treasury Yields

U.S. Treasury Yields To Cascade Into Negative Territory

Headline:

Real Fed Policy Objective = Sustained Asset Price Maximization.

Easy Money” = The Only Pathway.

Obsolete Inflation Obsession = Farcical Rationale For “Easy Money.”

Q1 hedge fund letters, conference, scoops etc

Treasury Yields

mohamed_hassan / Pixabay


One Of The Most Paradoxical Concepts…With Respect To S&P 500 Equity Prices = There Is No Consistent + Meaningful Correlation To Domestic GDP Growth.

And In An Era Of Global Markets…It Indeed Makes Some Sense…As Companies Can Sell Their Goods And Services Just About Anywhere On The Planet.

So…While Domestic Demand Certainly Matters [70% Of U.S. Economy = Consumer Demand]…It Matters Much Less To U.S. Multi-Nationals…That Can Augment Domestic Market Dynamics With International Opportunities.

Combined With Acute Financial Skill At Reducing Equity Share Count + Tax Minimization Strategies [in addition to a massive pork barrel corporate tax cut] It Has NEVER Been Easier For U.S. Multi-Nationals To Grow Earnings/EBITDA Per/Share Far In Excess Of Stagnant Top Line Revenue…Essentially Micro-Managing Every Line In The Income Statement In Order To Generate Handsome Per/Share Metrics.

And If That Does Not Work…Just Re-Define The Financial Statement Metrics i.e. Non-GAAP vs. GAAP.

And If That Does Not Work…Just Proudly Purchase Your Customers With Investor Cash i.e. Zombie Companies Like NFLX…Without Much Hope Of Future Profitability.

And If That Does Not Work…Just Make A Dramatic + Large + Pricey Acquisition.

No Matter…Investors Will Throw Money At Anything…Adhering To The “Soft” Instructions Of The World’s Central Bankers…As Stratospheric Asset Prices = Primary Directive…Fueled By The Easiest Money In Global History.


Nevertheless…There Is Still An Obsession With Domestic Economic Growth…As It Primarily Drives Organic Interest Rate Policy…Which Meaningfully Impacts Equity Valuations…As Lower Interest Rates Generally Push Up Valuations For Riskier Asset [Equities + Real Estate] And Vice-Versa.

And For The Foreseeable Future It Appears U.S. Interest Rates Are Heading Far Lower…As The Capital Markets Now Instruct Fed Policy Makers…Seeking To Catch Down To Negative Rates In Both Europe + Japan…Hoping To Finally Stimulate Legacy Based Inflation…Despite A Decade Of Miserable Inflation Under-Shoots…With The Same Policy Medication.


The Only Real Question Remaining = How Low Can Interest Rates Really Go In The United States?

The Mathematical Answer = There Is No Downward Limit.

But It Seems That Even The Globe’s Most Dovish Central Bankers [i.e. Kuroda + Draghi] Believe That Negative Interest Rates At/About -.50% Present As Some Psychological Limit…That The Masses Just Cannot Accept Anything Less…Even Though Those Same Masses Are Already Being “Tarred + Feathered” And Shamed As Irrational Savers.

So…Rather Than Lowering Rates Deeper Into Negative Territory When Tickling The Zero Bound…Draghi And Kuroda Ditch Their Interest Rate Playbooks And Pivot Toward Quantitative Easing…Further Diluting Both Their Currencies + “Credibility.”

These Policies…In The Far Away Lands Of Europe + Japan…Do Impact The U.S. Economy…As 2019 Money Instantaneously Moves Around The Globe In Search Of Yield…And Donny T. Knows It.

In Particular…U.S. Treasury Yields Offer A Beacon Of Positive Yield In A World Where $12T+ Of Sovereign Debt Yields Negative.

Of Course The U.S. Dollar Holds Firm In The Face Of Euro + Yen Diluting Policies…Which Seems To Really Piss Trump Off…Even Though QE + ZIRP Were Promoted…And Liberally Executed By U.S. Central Bankers Too.

With The World Drowning In Excess Money…Desperate For Positive Yield …There Still Is No Sustained Inflationary Impulse…What To Do?


Maybe It’s Time For Powell And His Paralyzed FOMC Compatriots To Change Their Tactics…Stop Talking About The Mixed U.S.  Economic Data…And Aggressively Act…Attempting To Tackle Their Diversionary Inflation Dilemma…While Stoking Their Primary Objective…Increasing Asset Prices.

How About They Shock Us All And “Strap On A Huge Monetary Sack?”

As In…Skip Through QE Playbook At Zero…Simply Tossing It Into The Garbage Can + Deeply + Immediately + Steeply Go Negative On Interest Rates.

How Negative?

Might As Well Start At -5.00%.

The Consequences…Draghi + Kuroda Currency Depressing Policies Are Immediately Neutered. + The U.S. Dollar Gets Slaughtered…Appeasing Quasi Fed Chair Donny T.

Further…Stocks + Real Estate [the ignored + real inflation recipients] Go “Full On” Parabolic As Unemployment Tumbles Further Toward 0%…Ensuring A Trump 2020 Presidential Victory.

Investors Then Begin Paying The U.S. Treasury To Hold Their Money And Suddenly…Soaring U.S. Sovereign Debt Becomes A Source Of Positive Cash Flow…Eroding Massive Fiscal Deficits…America Would Be So Great…AGAIN.


But What If This Tactic Backfires + Does Not Produce The Idealistic Results Postulated Above?

At Least Powell Might Finally Realize That Lower Interest Rates Are An Impotent Antidote To Legacy Based Inflation Measures + That The Archaic 1977 Congressional Mandate He Frequently Cites…Authored During A Period Of Hyper-Inflation…Is A Meaningless Political Relic…Sort Of Like The Fed.

Article by Global Slant


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