Moving Day

 Missouri to Texas

Emptying out the storage locker.  I think this will be my last trip to Missouri and the Saint Louis region.  Time for something new.

Long Term Treasury Yields Rise

 

When in inversion eventually rights itself, the party is on.

Enjoy the Ride

 So long Missouri, hello Texas.  Fed announcement later today.  The slow motion train wreck continues with a small number of people becoming incredibly wealthy and a large number of people paying more while getting less.  Fascinating.

The 2 Year / 10 Year Treasury "Un-Inversion" Ride

Inversions are fun until they are not

It has been a great one plus year ride as the 2 year yield surpassed the 10 year yield but like all good things, they must come to an end.  

Historically, when the "un-inversion" does finally come about (and it always does), there is a period of dizziness and nausea.

We are on that final loop-the-loop at this point.  The 10 year yield will soon begin to rise past the yield of the 2 year yield.

A few people are talking about how the Fed will ride to the rescue and immediately begin to lower the overnight rate and start a new round of quantitative easing to stem the bleeding.  I'm not so sure about that.  It is a different world today than when Greenspan and Bernanke had the big chair at the Fed.  BRICS was not yet an issue back then.  The ratings agencies (Fitch, Moody's and S&P) would shit a brick.  Buh-bye world's reserve currency status almost overnight.

Turns Out Buying Votes Has Consequences - Go Figure

Washington Post: 

IRS halts processing claims for pandemic tax credit tied to fraud

The measure was meant to help hard-hit firms, but the agency warns it is ‘not operating as it was intended’

The "Employee Retention Credit" that came about as a result of the Covid Scamdemic turned out to be the underwater earthquake that caused a massive tsunami of fraudulent claims...wow, go fucking figure, huh?  The number of fraudulent claims has caused the IRS to suspend the program.  The only reason that there were "hard-hit firms" in the first place was because the goddamned government made them shut their doors....because of the flu season.....mmmmkaaay....

Mr. Haney devises a plan with Ebb to file a claim for an Employee Retention Credit

Americans like to believe that we live in a Norman Rockwell United States and our "elected leaders" like to write policy and law as if we are all the residents of Bedford Falls.  Personally, I think that they know better and deep down most Americans recognize that there is a "critical mass" of assclowns, frauds, scammers, etc.  If you doubt that, just go look at the price of a new car.

Interest Rate Risk

Interest Rate Risk: When interest rates rise, the market value of the debt securities tends to drop.  This makes it difficult for the bond investor to sell a T-bond without losing on the investment.

A long time ago, in a galaxy far, far away, it was explained to me that the bond market was gargantuan compared to the other markets like equities.  People far and wide buy and sell the debt paper issued by their own government and the governments of other countries.  U.S. bonds are the King Kong of the bond jungle.  Gamblers line up to buy securities issued by foreign governments with the hope of trading them off to other gamblers for a profit.  The amount of money that trades hands is staggering.  The profits can be huge.  If you bought a high yielding 30 year security issued by a debtor nation deemed to be AAA rated and interest rates (market wide) dropped, you could sell that security to someone else for a large profit.  If you bought at the bottom and interest rates rose, well....not so much.

The last time the 2 year yield rose to a higher level than the 10 year yield was also a long time ago.  January 31, 2006.  That inversion lasted until March 21, 2007.  That inversion lasted a mere 13 months.  The current inversion is still in place but the gap is becoming more narrow by the day.  Up is down and down is up.  Central Bank intervention (buying long term bonds at nosebleed prices thus lowering the yield on the security) in what should be a free market (the market for the time value of money) has consequences.  Powell and company have a choice to make.  Either let markets do their thing and let losers lose and winners win.  Or, intervene again with Q.E. and rate fixing and completely destroy the value of the dollar and force the middle class / poor to take a wheel barrow of cash to Wal-Mart each time that they want to go buy groceries or fill up the Durango with petrol.

 

It is Not the Fall that Hurts. It is the Sudden Stop.

"The calliope crashed to the ground."

The yield inversion between the the 2 year treasury and the 10 year treasury is the flight.  The eventual and unavoidable unwinding of that inversion is the crash.  The longer that the inversion existed and the greater the width of the inversion usually dictates the severity of the recession that follows.  The current inversion between the 2 year treasury and the 10 year treasury began on April 1, 2022 when the yield on the 2 year was 2.44% and the yield on the 10 year treasury was 2.39%.  The gap widened considerably during the past 18 months but has now begun to taper off.  We are still inverted but the gap is not as wide.  As of yesterday, the inversion still exists with the 2 year at 4.98% and the 10 year at 4.27%.  As I have written before, treasuries are very boring.  Watching yields is like watching paint dry.  Make no mistake about it, bond yields will eventually correct and when they do, the shit will hit the fan.