So, you're thinking, great, more free everything for everybody. But, hold on a minute. Wall Street, ever vigilant in keeping their DC enablers on a short leash, don't like the idea of Democrats or Republicans holding all the cards. With a slim margin in the House, a breakable tie in the Senate and Joe Biden ostensibly the next president, Democrats have tipped over the balance of power to their favor.
Wall Street prefers split government, simply due to the idea that when the government is fractured, it can't pass any new laws to screw up the orderly function of business. Thus, they're a little bit miffed over the developments out of Georgia and stock futures are pointed dramatically lower. Gold is adding to Tuesday's gains and silver is approaching $28 an ounce. Bitcoin rallied as high as $35,868 overnight and has settled in around $34,500.
Later today (Wednesday, Jan. 6) a joint session of congress will consider the electors in the presidential race for certification. There will be objections from Republicans and debates on dual slates of electors from as many as seven states, maybe more. Out on the streets of DC, millions - yes, millions - will be rallying for Donald J. Trump and to save the nation from what many consider a stolen election and other grand crimes committed by Democrats in the quest for power. In all likelihood, the pro-Trump demonstrators will be joined by groups from ANTIFA and BLM. It's going to be quite the spectacle, although the mainstream media will give it about 30 seconds of coverage, call the crowds "large" and try to move on to their coronavirus agenda.
That's the agenda today in the newly-crowned banana republic of America, where rich people and Democrats get 60 days for most crimes if they're even arrested, arraigned, tried, and convicted and poor people and Republicans get thrown into dungeons if they aren't shot first.
Perhaps the most alarming number to come out of recent events is the rise in yield of the benchmark 10-year note, which topped 1.00% overnight, a number that everybody agrees is bad for the economy, stocks, the federal debt, this year's deficit, and probably NFL TV ratings. Rising interest rates mean that debt cannot be so easily disposed of and the cost of servicing the massive debt on government, business, and individual books is higher.
If anything is capable, by itself, of bringing down the house of cards that is the US economy, it's higher interest rates. While the appearance of 1.00% on the 10-year yield may be just another number in a sequence, but the psychological impact will be felt far and wide, especially if that sequence continues higher, which has been the recent trend.
The last time the 10-year yield was above 1.00% was on March 19 of last year when it closed the day at 1.12%. It was during that period in which stocks were bottoming out and the Fed was in the process of cutting the federal funds rate to Zero. On Friday, the yield on the 10-year note was clipped by 20 basis points, to 0.92%. By Monday of the next week (March 23), the Fed having issued more emergency policies over the weekend, the 10-year would yield 0.76. The one-month bill caught a yield of 0.01%, its lowest ever.
As yields on bonds rise, issuers scramble to sell what they're holding at discount, as their lower-yielding bills, notes, and bonds are of lesser value. The danger is of setting off a vicious cyclical event, a selling panic in the bond market, pushing yields even higher. In the most extreme cases, yields spiral out of control, much fixed-income wealth is destroyed and lending eventually siezes up. With the Fed intent on keeping interest rates as close to zero as humanly possible, rising rates is the last thing they want to see. It's a sign that they've lost control of the currency, the economy, the whole ball of wax.
While the circus in Washington continues to play out, people with money are going to focus more on the realities of the economy. Rising interest rates natuarally pulls investment away from stocks and into fixed income. If rates continue to rise, the stock market will crash as money flees to the less-risky and more profitable fixed income space.
The trend toward higher rates is not something that began with the election of two Democrat Senators from Georgia. The entire treasury complex has been gradually rising since the March lows, but the 10-year note in particular has been gaining momentum since October of 2020, topping 0.90% a couple of times in November and remaining above that level all of December, the highest yield of 0.97% coming on December 4. The rising yield will probably be hailed as a positive sign that the economy is recovering by the putrid financial press at Bloomberg and CNBC when the truth is that inflation is about to run rampant and push the economy further into recession.
Be prepared for fireworks on political and economic fronts beginning Wednesday and for the immediate future.
Here’s a very entertaining interview with Lawrence Lepard... "The Currency Reset Is Coming | Gold, Silver & Mining Stocks Will Moonshot"
At the Close, Tuesday, January 5, 2021:
Dow: 30,391.60, +167.71 (+0.55%)
NASDAQ: 12,818.96, +120.51 (+0.95%)
S&P 500: 3,726.86, +26.21 (+0.71%)
NYSE: 14,536.53, +159.83 (+1.11%)
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