rising yields

[doodle]

So, 30 year is back at 3.30% which has been a sticking point over the last few years. Any prediction how high rates will rise to and when then might come crashing down again? I just don't view us going over 4% on the 30 year again for a long time....perhaps until after the babyboomer generation passes on.

[doodle]

I listen to Greenspan here: http://www.cnbc.com/id/100798203 and he keeps talking about historical yields and how we are so far below the average compared to past recoveries. Maybe in this case past performance is a poor indicator of future results?

I keep thinking of the story of the chicken and the farmer. For years the chicken would run up to the the farmer every morning as he came out to give him food.....until the day when he came out to chop off its head.

[moda0306]

I don't know when the last time private balance sheets were in such shambles at the same time we had a demographic bubble retiring right at the back end of a housing bubble.

If someone had to concoct a recipe for low rates and dis-inflationary forces, just look at the U.S. and bake for 30 years.

Of course, we're "printing money."  However, trading fiat assets for similar fiat assets isn't giving us new fuel to add to the fire... it's simply giving us kerosene instead of gasoline when we need more fuel, not just a more quick-burning kind (not even sure if that analogy goes in the right flammable direction).

I think I said before I'd be buying at 3.5%... I'm tempted to do so now.

[annieB]

Over the last 10 years,yields have had major tops between 4.57% and 5.21%.
Sounds cheap historically but expensive near term.I do see how the 3.40%
could be an entry point.

[MediumTex]

We will probably go as high as 4.25%-4.50% before heading back down.

We're just trading in a range as the secular bull market for treasuries plows forward.

[doodle]

This recent article just solidifes my prediction of deflation and low rates for the foreseeable future. Where on earth is continued spending going to come from? And just wait til robot revolution ramps up putting even more out of work. I really feel that we are in uncharted waters here when it comes to the global economy and the future of capitalism. To compare what is happening today to past recessions is in my mind to miss the bigger picture. http://www.nytimes.com/2013/06/09/your- ... ml?hp&_r=0

[doodle]

Yields are over 3.6 now...how high do people here think they can go in light of a tanking stock market?

[MediumTex]

Yields are over 3.6 now...how high do people here think they can go in light of a tanking stock market?

Easily over 4%.  When people get scared they do all sorts of dumb things before their senses return.

[Libertarian666]

Yields are over 3.6 now...how high do people here think they can go in light of a tanking stock market?

If the Fed actually stops QE (which I doubt they will), then IMO the long bond could easily go to 8% or higher given the dreadful fiscal "policy" of the US government.

[doodle]

The dreadful fiscal policy of the United States and political gridlocks seems much more likely to put us into a deflationary situation and yields much lower than they are now.

[Libertarian666]

The dreadful fiscal policy of the United States and political gridlocks seems much more likely to put us into a deflationary situation and yields much lower than they are now.

Where will the money come from to buy $1 trillion+++ (considering the "automatic stabilizers") of new bond issuance in a deflationary depression?

[doodle]

The dreadful fiscal policy of the United States and political gridlocks seems much more likely to put us into a deflationary situation and yields much lower than they are now.

Where will the money come from to buy $1 trillion+++ (considering the "automatic stabilizers") of new bond issuance in a deflationary depression?

The dreadful fiscal policy of the United States and political gridlocks seems much more likely to put us into a deflationary situation and yields much lower than they are now.

Where will the money come from to buy $1 trillion+++ (considering the "automatic stabilizers") of new bond issuance in a deflationary depression?

Where all money comes from...out of thin air. Money isnt really a problem, it is a tool that can be managed and manipulated. Real resources and productive workers are the important elements of a strong economy.

[Austen Heller]

So, 30 year is back at 3.30% which has been a sticking point over the last few years. Any prediction how high rates will rise to and when then might come crashing down again? I just don't view us going over 4% on the 30 year again for a long time....perhaps until after the babyboomer generation passes on.

Yield on the 30-year is at 3.81%.  I have been out of long bonds since May 2012, when rates were around 3%; I didn't like the risk-return profile at that level, so I figured I'd step to the sideline until rates got more "normal".  I think we're about there.  4% is my magic number where I feel more OK with the risk-return profile.  I'm definitely getting the itch to tip-toe back in.

[Libertarian666]

So, 30 year is back at 3.30% which has been a sticking point over the last few years. Any prediction how high rates will rise to and when then might come crashing down again? I just don't view us going over 4% on the 30 year again for a long time....perhaps until after the babyboomer generation passes on.

Yield on the 30-year is at 3.81%.  I have been out of long bonds since May 2012, when rates were around 3%; I didn't like the risk-return profile at that level, so I figured I'd step to the sideline until rates got more "normal".  I think we're about there.  4% is my magic number where I feel more OK with the risk-return profile.  I'm definitely getting the itch to tip-toe back in.

You're a lot braver than I am. I'm waiting for 10%... and then I may wait some more.

[MediumTex]

So, 30 year is back at 3.30% which has been a sticking point over the last few years. Any prediction how high rates will rise to and when then might come crashing down again? I just don't view us going over 4% on the 30 year again for a long time....perhaps until after the babyboomer generation passes on.

Yield on the 30-year is at 3.81%.  I have been out of long bonds since May 2012, when rates were around 3%; I didn't like the risk-return profile at that level, so I figured I'd step to the sideline until rates got more "normal".  I think we're about there.  4% is my magic number where I feel more OK with the risk-return profile.  I'm definitely getting the itch to tip-toe back in.

You're a lot braver than I am. I'm waiting for 10%... and then I may wait some more.

Brave would be buying at 2.7%.  Buying at 4% looks like a pretty conventional way to play the long term trend (if you're into that sort of thing).

[Libertarian666]

This looks like a good bet too... if you forget about the last little part:

http://bodurtha.georgetown.edu/enron/En ... age002.gif

[doodle]

Big difference between Enron and United States Government.

I used to take the Austrian side of this discussion, but Ive done a 180 over the last few years.

I cannot think of a reasonable scenario (short of some massive war leading to the downfall of the US government and hyperinflationary collapse) that could lead to bond yields climbing too much higher than 4 percent.

I view the demographic trend, continued low demand for credit, and high unemployment as one that is much more conducive to low inflation and interest rates.

After all, Japan is still going strong:

The more yen he conjures up to produce inflation, the more he mesmerizes markets. Investors are more bewitched by Kuroda than they are by the number 1,000,000,000,000,000. The 15 zeros now needed to express Japan’s national debt almost have a dark-arts quality all their own. Yet a week after Japan’s IOUs reached the 1 quadrillion yen ($10.28 trillion) mark, yields have actually declined.

[doodle]

I would also argue (and I have before) that making future predictions based on past history is a big mistake in the present environment because I strongly suspect that capitalism as we know it is going to cease to exist in the next 20 or 30 years.

We are witnessing (I think) the beginning of a collapse in the traditional relationship between labor and capital. Labor is quickly becoming obsolete which leaves a large percentage of the population without a means to generate income. Until we resolve this issue, I cannot see a catalyst for higher inflation. 

[MediumTex]

This looks like a good bet too... if you forget about the last little part:

http://bodurtha.georgetown.edu/enron/En ... age002.gif

You're comparing Enron to the U.S. treasury market?

I'm not saying that your predictions of rising interest rates won't come true some day, but there are underlying macroeconomic conditions that have driven interest rates to their current levels, and I don't see any of those conditions changing in the immediate future.

I'm not saying that past trends are predictors of future trends, what I'm saying is that if the factors driving past trends are still in place, it's reasonable to believe that the trend will continue until those underlying factors change.

[Mdraf]

We are witnessing (I think) the beginning of a collapse in the traditional relationship between labor and capital. Labor is quickly becoming obsolete which leaves a large percentage of the population without a means to generate income. Until we resolve this issue, I cannot see a catalyst for higher inflation.

Capital has simply flowed to cheaper labor in Asia.  What's so unusual about that?

[Austen Heller]

I cannot think of a reasonable scenario (short of some massive war leading to the downfall of the US government and hyperinflationary collapse) that could lead to bond yields climbing too much higher than 4 percent.

I view the demographic trend, continued low demand for credit, and high unemployment as one that is much more conducive to low inflation and interest rates.

So according to your theory:
The last time we saw a steady rise in rates (1950-1980) it was because U.S. manufacturing was ramping up and people were living the "American dream".
These situations will not be repeated anytime soon.
Therefore rates will stay low for the foreseeable future.

Just trying to understand all of this, in the context of what has previously lead to steady rate rises in US history. 

[Libertarian666]

This looks like a good bet too... if you forget about the last little part:

http://bodurtha.georgetown.edu/enron/En ... age002.gif

You're comparing Enron to the U.S. treasury market?

I'm not saying that your predictions of rising interest rates won't come true some day, but there are underlying macroeconomic conditions that have driven interest rates to their current levels, and I don't see any of those conditions changing in the immediate future.

I'm not saying that past trends are predictors of future trends, what I'm saying is that if the factors driving past trends are still in place, it's reasonable to believe that the trend will continue until those underlying factors change.

No, Enron had much sounder financials than the US government.
And I agree that if the factors driving a trend remain in place, then it's reasonable to believe that the trend will continue until those factors change.

In one example, the relevant factor is the unbelievable profligacy of the US government, and the trend is for the "dollar" to drop in price relative to gold. There is no limit to the factor, until they run out of suckers to take their debt, so there is no limit to the trend.

In another example, the relevant factor is the Fed buying almost all the new Treasury issuance, and the trend is for rates to be pinned at an artificially low level. In this case, the limit is when the Fed stops buying (if that ever happens), at which time interest rates will head for the moon.

[doodle]

We are witnessing (I think) the beginning of a collapse in the traditional relationship between labor and capital. Labor is quickly becoming obsolete which leaves a large percentage of the population without a means to generate income. Until we resolve this issue, I cannot see a catalyst for higher inflation.

Capital has simply flowed to cheaper labor in Asia.  What's so unusual about that?

Right, but now capital is dispensing with labor all together. In the future, there will be little need for large pools of laborers. This is a problem in a world that will be approaching 9 billion people by 2050. The present system is unsustainable if there is not an adequate channel for money to flow between producer and consumer. Traditionally labor provided the conduit for money to circulate. When you remove labor from the equation in a future that will see ever increasing automation, you have a problem.

[Pointedstick]

Right, but now capital is dispensing with labor all together. In the future, there will be little need for large pools of laborers. This is a problem in a world that will be approaching 9 billion people by 2050. The present system is unsustainable if there is not an adequate channel for money to flow between producer and consumer. Traditionally labor provided the conduit for money to circulate. When you remove labor from the equation in a future that will see ever increasing automation, you have a problem.

Imagine a whole factory of these: https://www.youtube.com/watch?v=tn0EKtLOVx4


This is an Amazon warehouse:


These are all incredible, miraculous pieces of capital that tremendously increase production and lower prices… but the value of less productive labor is being destroyed. It will be interesting to see how society copes with this. It's only a matter of time before even the Chinese factory owners start replacing workers with pick-and-place machines…

[Mdraf]

I don't know. Automation has certainly increased employment at the NSA !

You may be right about the trend but it's productivity that counts. So if automation can increase productivity then people can enjoy the same standard of living with less work. Think of the labor that our ancestors had to put in just for one meal.  So maybe the future laborer will work one or two hours a day while the robots will do the rest