Treasury 10-Year Yields Touch Highest in 2 Months Before Fed (Will Fed Remove “Staying Low For A Long Time” Reference?)

There is speculation that the Federal Reserve may remove their wording that interest rates will be held low for a long, long time, as Linda Ronstadt sang.

Sept. 15 (Bloomberg) — Treasury 10-year note yields touched the highest level in two months amid speculation the Federal Reserve will delete reference to interest rates staying low for a “considerable time” when it meets this week.

The difference between yields on two-year notes and 10-yea debt, the yield curve, reached the most since Aug. 1. There’s a 59 percent chance the central bank will increase its benchmark rate by July 2015, versus 51 percent at the end of August, federal fund futures show. A report today showed manufacturing in the New York region rose more than forecast in September.


“The market is braced for a hawkish Fed,” said Richard McGuire, a fixed-income strategist at Rabobank International in London. “This shift is in the price, so the hurdle for the Fed surprising the market is not insignificant.”

The yield on Treasury 10-year securities fell two basis points, or 0.02 percentage point, to 2.59 percent as of 8:46 a.m. New York time, according to Bloomberg Bond Trader data.

The yield touched 2.62 percent, the highest since July 7 after climbing 15 basis points last week, the biggest five-day increase since the period ended Aug. 16, 2013.

And the yield curve this morning flattened by almost 50 basis points at 30 years.


Perhaps Linda Ronstadt’s Silver Threads and Golden Needles would be more appropriate.


And here is Linda Ronstadt’s commentary on Fed policy creating a boom economy through fiat money.


Fed’s Fischer Leads Committee Watching for Asset-Price Bubbles (Here Are Bubbles To Watch, Stan!)

The Federal Reserve’s Stanley Fischer is now leading a committee to watch for asset bubbles. Fed officials want to ensure that six years of near-zero interest rates don’t lead to a repeat of the excessive risk-taking that fanned the U.S. housing boom and subsequent financial crisis.

Let me help you out, Stan!

Here is a chart of the S&P 500 stock market index against The Fed’s Balance Sheet to proxy for near-zero interest rates. Yes, it looks a bubble to me!


Here is a chart of average hourly wage earnings growth YoY against The Fed’s Balance Sheet. No bubble in wages.


Similarly, there is no bubble in real median household income since The Fed’s massive intervention. Quite the opposite, in fact.


How about home prices? Yes, there appears to be a bubble in home prices since 2012 given the poor growth in wage earnings.


Gold? Gold was soaring until 2011 with the growth in The Fed’s Balance Sheet, but has been declining/stagnant since then. So, no current bubble.


There you go Stan! Home prices and equity markets are in a bubble (thanks to NO bubble in wages and earnings). And no current gold bubble either. It’s hard to sustain housing and stock market bubbles with stagnant wage earnings and household income.

Rich vs Poor

So I would watch the equity markets and home prices for excessive risk taking by wealthy investors.

Stanley Fischer with “Orange Lady” Christine Lagarde from the International Monetary Fund (IMF) looking for asset bubbles over coffee. And apparently Lagrade has been promoted to General in the Global Monetary Army.



Minneapolis Fed’s Kocherlakota Channels “Rent Is Too Damn High” With “Interest Rates Are Too Damn High”

A top Federal Reserve official on Thursday said he believes U.S. interest rates are too high, and had no “good answer” when asked why the Fed is reducing its efforts to push borrowing costs down.

“Interest rates are not low enough,” Minneapolis Federal Reserve President Narayana Kocherlakota said at a Town Hall meeting in Montana, citing subdued inflation and “unacceptably high” unemployment as evidence.

His speech was reminiscent of Jimmy McMillan’s infamous “Rent is too damned high” speech.

Kocherlakota also mentioned Meredith Willson, creator of “The Music Man”:

Back then, U.S. President Gerald R. Ford launched an anti-inflation campaign and commissioned Meredith Willson to write a song to go with it. “Who needs inflation? Not this nation,” Kocherlakota quoted from the song, to chuckles in the largely student audience.

“Mr. Willson’s pithy characterization was spot on in 1974,” Kocherlakota said. “But 40 years later, I would suggest that it’s exactly backward. Right now, this nation needs more inflation.”

True, inflation hit 12% in December 1974. Why President Ford thought that having Meredith Willson write a song like “Whip, whip, whip inflation now” was a good idea is beyond me, unless he added “Eat crow instead of cow.”


The worst was yet to come when inflation cooled then hit 14.5% under President Jimmy Carter.

But are interest rate too damn high? Actually, the 30 year mortgage rate is near all-time lows …


and it still hasn’t jump started single unit housing starts or mortgage purchase applications.


The problem, of course, is stagnant wage growth which is running at about the same growth rate as inflation.


Lowering interest rates has not helped the housing recovery or improved wage growth.

Perhaps the Minneapolis Fed President would have been better off singing Meredith Willson’s “We’ve Got Trouble in River City.”


Fed: Median Incomes Fell for All But Richest in 2010-2013

The Federal Reserve has finally verified what I have been saying since 2008: there is no recovery for anyone other than the wealthiest Americans.

Sept. 4 (Bloomberg) — Only the rich saw their incomes benefit from the economic recovery during 2010-2013, as earnings stagnated or fell for all others, a report from the Federal Reserve showed today.

Median income adjusted for inflation rose 2 percent to $223,200 for the wealthiest 10 percent of households from 2010 to 2013, the Fed said today from Washington in its Survey of Consumer Finances. The bottom 60 percent saw the biggest declines.

The improvement in consumer finances has become increasingly stratified during the recovery, thanks in part to gains in the stock and housing markets that have been boosted by the Fed’s unprecedented stimulus. Meanwhile the labor market has been slower to progress, with wages remaining stagnant for many workers, aggravating the disparity in income.


The report “reveals substantial disparities in the evolution of income and net worth” since 2010, Fed economists wrote.

The median, or mid-point, income for all families fell 5 percent from 2010 to 2013, while mean, or average, income climbed 4 percent, the data show. That’s “consistent with increasing income concentration during this period,” the report stated.

Median net worth fell 2 percent to $81,200 from 2010 to 2013, while mean net worth was little changed at $534,600.

The answer? The Fed keeps on with its zero interest rate policies (ZIRP). Brilliant!



Fed: Decline in the Labor Force Participation Mostly Structural in Nature; Rate Will Likely Continue to Decline

According to a presentation at the Brookings Panel on Economic Activity, September 11-12, 2014, Federal Reserve economists and soothsayers explain that the US decline in labor force participation is mostly structural in nature … and it is likely to continue unabated.

The reason according to The Fed? The aging American population and disillusionment with employment and/or wages.

Clearly, The Fed’s expansion of their balance sheet is negatively correlated with labor force participation.


M2 Money Velocity and average wage growth are also declining with The Fed’s actions since 2008.


If US labor market problems are structural, then why is The Fed persisting in their zero interest rate policies?

Oh. Asset bubbles do enrich those in housing, commercial real estate and the stock market, particularly after the 3rd round of quantitative easing (QE3).


Yes, the declining labor force participation and wage “recovery.”

Pirates of the Carribean: Belgium and Caribbean 4th and 5th Largest Holders of US Treasuries (After Federal Reserve, China and Japan)

As we begin our discussion of the yield curve for sovereign debt, it is important to understand who actually owns US Treasury debt.

Of course, The US Federal Reserve owns the largest share of US Treasury debt outstanding, followed by China and Japan.

Following Japan, tiny Belgium and the even tinier Caribbean follow in 4th and 5th place. Belgium has become a financial center for Treasuries owned by other countries, or that it at least has become a transit point for them (for example, Euroclear).

Then there is the Caribbean (El Caribe). These are largely off-shore banks investing on behalf of American and foreign investors.


Now to the US sovereign yield curve, a measure of yield by maturity. It is currently upward sloping (longer maturity bonds and notes have higher yields than shorter maturity bills and notes).


The US (green) and the UK (blue) have the highest sovereign yields among a group from Europe and Japan. France (red) and Belgium (orange) have lower sovereign yields, followed by Germany (purple) and Japan (pink).


The relatively higher US Treasury yields has resulted in a relatively higher Fannie Mae current coupon for their mortgage-backed securities. The following chart is the spread of the Fannie Mae current coupon against the popular 10 year Treasury yield.


C’mon! Sing a-long! “Yo ho, yo ho, a pirate’s life for me!”



Jackson Hole’d: 10Y-5Y Treasury Curve Flattens To Early January 2009 (Flattening NOT A Good Sign!)

Federal Reserve Chair Janet Yellen spoke this morning at the annual monetary policy cavalcade at Jackson Hole, Wyoming … where the Elite Come To Meet!


The end result? The Treasury 10y-5y curve flattened to its lowest level since early January 2009.


Here is the yield curve for today versus January 1, 2009.


Of course, a flattening yield curve is NOT a good sign for the global economy, where investors run for safety in the US Treasury Markets. And is reflected by the fact that this Jackson Hole cavalcade is the first won that was followed by a DOWNTURN in the S&P 500 index.


Yes, life is tough at the monetary cavalcade in Jackson Hole!