It’s Thanksgiving Break, and to avoid all of the projects that I will have the pleasure of working on during “Break”, here I am keeping my peeps up to date on current events. Let’s get into it.
Weekend Reading Nov 23
To begin, let’s talk bonds shall we? As you should recall, the United States’s Central Bank has been (supposedly) planning on raising interest rates mid-year next year. Many people have been frustrated that this has taken so long, especially my favorites on CNBC! Not so fast my friends. China’s Central Bank surprisingly came out last week announcing that they are lowering some of their interest rates. Coupled with Japan’s recession, and all the grade A bologna in the European Union; um tapering (to me) doesn’t look like such a good idea. I’ll explain below, but here’s a good piece to bring you up to date, Via WSJ
Let’s look at the big picture. Our economy is not by any means ideal, but it’s by far the coolest kid on the block when you compare it to other major economies. If the United States begins to raise interest rates while other countries lower theirs, then that’s going to hit the world’s overall economy in the face with a baseball bat. Let’s look at the US Treasury Yield curve. This comes from Kathy Jones, a VP at Charles Schwab and lead on fixed income strategy. The following illustrates the difference between where the Fed sees interest rates going versus where the market sees it.
You see that the market expects rates to be much lower that the Federal Reserve’s projections. So how do we tie all of this stuff together? First it’s important to understand the concept of “flight to quality”. When “stuff” hits the fan and there is a scare in the market/world, people sell their investments to go and buy safe holdings, which are US Treasury bonds (cuz the government is so kind to completely guarantee paying back treasury bond holders). Also when this flight to quality happens, it pushes interest rates/yields down (meaning prices go up). If you want to know why then just investopedia it because I’m not going to explain bond math today.
So people fly to quality, buy treasury bonds, and yields go down/prices go up for treasuries.
What happens when you add the EU, Japan, China and friends into the mix? Well their interest rates are low, so why would anyone invest in “riskier” countries’s governmental bonds when the United States is offering safer and higher yielding governmental bonds? Um…. they won’t. People will instead invest in ‘Merica. So this will push yields down, and will completely and utterly mess up the yield curve. If I were Janet Yellen right now (Fed’s Chairwoman) I would be pretty freaking nervous….
Now that you’re scared and will probably lose sleep over monetary policy….. It’s important to note that interest rates do not have to rise. Big money managers and media have been “predicting” the Fed’s rate hike for years, and they want it to happen so that they’re right. Well ignore those Pundit goons. Another thing they’re claiming is that the 3 rounds of Quantitative Easing (increased money supply in the economy) has created a bubble that is going to burst. Well maybe that is true, but I saw this sick chart comparing our easy money policy compared to China.
We haven’t seen a $15.4 Trillion Bubble burst in China, so should we expect a $3.9 Trillion Bubble burst here? I doubt it, but if it happens….. Holy ********** we’re in trouble. Just think positively?
End Bond Rant
Here is other stuff going on in the world:
More US Oil debates surfacing in the Capitol. Via TheHill
Still think income inequality isn’t an issue (like global warming)? You’re wrong. Via NBC
Here’s Bloomberg’s Market Round-Up (supporting all my gibberish above). Via Bloomberg
US is experiencing the coldest November since 1911 (and anyone saying this disproves “Global Warming” has mashed potatoes for a brain).
Alan Greenspan (ex US Fed Chairman) used underwear sales as an indicator for US economic strength, and yes there is a legitimate correlation. Nice Mr. Greenspan, we’re looking at you Hanes and Victoria’s Secret.
After my Hokie football team lost 6-3 to a completely defeated Wake Forest in OT, the last game to go scoreless through regulation was Arkansas State vs Florida Atlantic/International (some no name D1 AA team in Fla.) IN 2005!!!!! Keep it up Hokies…
Only 31 days until Christmas. I’m asking Santa for a Tablet and a new VT Football coach who doesn’t have the last name “Beamer”.