Myopia: (n) a lack of foresight or discernment: a narrow view of something
Monday, June 24, 2013
In a word, it's bad
Rates on the 10-year Treasury have now more than doubled in a year, to 2.62% today. There is a word for that: bad. As in bad, bad, bad, bad, bad, we will all drown in lakes of blood bad. As I wrote in 2009, interest rates can never be allowed to rise again. They are now rising, and since bond prices move inversely to rates, there is a massively-growing loss in the bond market, which is much larger than the stock market, and which includes such playgrounds of the ultra-rich as already massively-underfunded pension funds.
I suspect 3.5%* is the spot where it all comes apart again. This is going to be an interesting fall. So to speak.
* give or take.** The longer it takes to get there the better. Years would be best, but I expect it will be before October. ** This is not because 3.5% rate on a 10-year bond is "unsustainable." It's not, at least not by itself. But I do not beleive that the Fed, because of the aforementioned investment losses, the damage to the federal budget, and the effects on international capital flows, wishes for the rate to get that high. If it does anyway, then something is very, very, very wrong.