Tuesday, March 20, 2012

Rising Treasury Rates A Sign Of Improving Economy? Baaahaaa!

What’s up with the uptick in longer term rates last week?  Bill Gross was quoted last week that he thinks its inflation and QE3.  And that the thirty year run in Treasuries is coming to an end.  This view is shared by many in the financial community.  Everyone I am aware of in the mainstream economics and financial community missed this crisis including Gross.  I happen to know there is a very substantial herding element on Wall Street.  They all read each other’s commentaries to form their own conclusions; which by simple understanding of the human condition, happens to the the same conclusions.   Essentially, everyone on Wall Street does what everyone else on Wall Street does.  That’s what happens when you live off of the Federal Reserve’s dole.  The prevailing views of self-importance are never weeded out in favor of reality.  ie, Sheltered views written in a bubble aren’t reflective of reality and the future is going to do what it wants.  I have nothing personal against anyone in our financial community but that Gross keeps coming out and making public proclamation that we are going to see coming inflation and higher rates is based on what?  It should be based on supply and demand but it obviously isn’t.   The last time he attempted to predict the future of bonds, we wrote on here that his perspective was completely inaccurate.  Subsequently the the bond market did exactly the opposite of what he said it would.  I thought Pimco was the world’s leading authority on bonds?   You know, like Goldman Sachs is the leading investment bank.  Or JP Morgan is the leading authority on derivatives. 

What I suspect is happening with the back up in rates last week is that many investors are moving out of sovereign bonds and into stocks.   (Supply and demand)  This because of what is happening in Greece and the perception that sovereign bonds at incredibly low rates simply aren’t sustainable at best and bond holders will have to take massive haircuts at worst.  So, instead the equity markets with perceived low price-earnings multiples and perceived tremendous value offers a safer investment.  So money is rotating out of bonds and into equities.  Pigs are being led to the slaughter.  As we have said countless times over the last seven years, this stock market is substantially more expensive than it was in 1929 before it dropped 95%.  We’ll talk more of that in my Buffett-IBM post. 

By the way, just as a matter of perspective, in the 1970s a bond trader made about as much as a good paying factory worker’s job.  Seriously.  That’s it.  Today, because we now live in a Ponzi world driven by financial gambling and financial “innovation”, ie pushing around paper, we grant Wall Street’s mob lordship as masters of the universe.  We therefore assume they actually know more than the rest of us because they are exalted by the state and pay themselves tens of millions of dollars to push paper around in the Ponzi economy.    Money is allocated in our economy based on the aberration of the financial bubble rather than any kind of merit-based economic system.  This perverse effect is even felt in sports and entertainment, which I have said is going to see a major collapse in earnings when this bubble pops.  This belief system that Wall Street is full of masters of the universe will be punished mercilessly and therefore, will disappear soon enough.   The only true believers that remain are the politicians and Wall Street themselves.   Everyone else has already awoken from that pipe dream. 

What would the average Wall Streeter be doing if we had a distributed public monetary and banking system rather than a  debt-based monetary system concentrated on Wall Street?  Because we are most certainly witnessing the end of this form of tyrannical money.    Well, they would likely be a loan officer at a community bank or a manager at the local Hooter’s or something similar.  A very few might actually be the president of a local bank or a public banking branch.  Are you sure they are in fact masters of the universe?  Or masters of convincing you they are masters of the universe?  … Which, by the way, grants them the ability to pay themselves tens of millions of dollars and the ego’s perceived self-importance that comes with it through television interviews, hobnobbing with politicians, buying mansions, etc.   The self is the great deceiver.

One thing I am quite certain of is if you work in finance, be it corporate finance or Wall Street, somewhere between one in three or two in three of you will no longer be working in finance when the bubble pops.   That most certainly includes at least half of all financial advisors.  And, salaries will never again return to these levels as a post-bubble economy allocates capital more efficiently based on need and merit in lieu of Ponzi economics.  The haircut is going to be as massive as the bubble is.   Personally, I’d start hoarding cash and looking into a backup career because these jobs will never come back.   I find that statement rather ironic given  people in the financial community have been telling people who used to make things in this country that same line for decades.   Karma is indeed a bitch.    

posted by TimingLogic at 9:39 AM

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