Fear and the 10-Year Treasury Yield

Talk is rampant in financial circles over the trending 10-year bond yield, the benchmark Treasury that touched the 4.00% mark on Monday. In general terms, rising bond yields mean rising interest rates overall, from everything from credit cards to home mortgages and also serves as a early warning sign for inflation.

The run-up of the 10-year bond yield has sparked new widespread fears that inflation may return to US markets, crimping the year-long rally in stocks and pounding down any hope for recovery in the housing sector. These fears are largely unfounded, however, because the alignment of Treasury yields to the real economy is simply not sensible at this time.

First, the Fed isn't going to move on interest rates any time soon, even though they merely follow the direction of the markets as a normal course of operations. Second, higher interest for loans is something of a mystical chimera, since only mortgage loans have been held lower by the unprecedented slump in residential housing. Credit card rates for most Americans are already sky-high, with no relief in sight from the immoral banks and credit lending companies.

Third, as an inducement to inflation, bond yields should work as a dead weight on equities, as investors can make worry-free money on Treasuries as opposed to stocks. If stocks, and their underlying companies are forced to pay more for money that is going to slow down everything, from sea to shining sea. Additionally, high unemployment is underpinning the entire economy, producing slack demand, though the incredible sums of stimulus money has worked as an inducement to spend, baby, spend.

Treasury yields on the 10-year have been abnormally low for some time and will probably remain so, until there are real, powerful signs of a sustained recovery. The 160,000 jobs created in March are a one-off, hardly indicative of a trend, though one would have to believe that businesses simply cannot cut many more workers.

There are more factors at work, including flat wage growth and tight lending standards which are keeping robust economic growth in check. The 10-year hit 4%, and backed off immediately, as is the cyclical nature of the beast. The chances that it will surpass that mark and remain there are about as good as they are for yields to fall back into the 4.4 to 4.6% range, which is where they're likely to head in coming weeks and months.

What may be the real concern not finding any voice anywhere, is that foreign investors have soured on the longer-term Treasury offerings, the 10 and 30-year bonds, and are demanding a better payout. That would make more sense than any other argument recently being offered.

Investors on Wall Street still don't seem very afraid of anything, as stocks fell early in the day but rebounded on US dollar weakness. The weak dollar - strong stocks trade continues to be the height of Spring fashion, even as wrong-headed as that condition appears to be.

Dow 10,969.99, -3.56 (0.03%)
NASDAQ 2,436.81, +7.28 (0.30%)
S&P 500 1,189.43, +1.99 (0.17%)
NYSE Composite 7,604.44, +3.51 (0.05%)

Volume remained subdued as advancing issues soared past decliners late in the day, 3706-2731. New highs beat new lows by better-than a 10-1 margin, 917-90.

NYSE Volume 4,615,025,000
NASDAQ Volume 2,122,137,250

Oil rose for the sixth straight day, as though the warmer weather would serve as an inducement for everyone in America to go out for a leisurely drive. Crude for May delivery rose 22 cents, to $86.84, based entirely on nothing. There's are better arguments for oil selling for lower prices than there exists for supporting higher ones: higher prices for energy serve as a tax on consumers and takes away from other discretionary spending. But, being summer in America and the media foisting the parlance of "recovery" upon us, $3.00 a gallon is already standard in larger metropolitan areas.

Gold finsihed ahead by $2.20, to $1,135.10, though silver fell 19 cents to $17.92. We may be close to a temporary top in metals and most other commodities as well. The global economy cannot withstand a bout of inflation at this juncture, especially with entire nations suffering from the debt bomb. Consumers seem to be still pretty well entrenched, so where the spending is coming from is anybody's guess.

The bond yield bulls have it all wrong. Longer-dated instruments aren't going to exacerbate an already steep yield curve.

Self-fulfilling Market

Does it take a genius to see where the market is headed and why the rally which began a year ago is probably the most overblown equity bubble of all time?

Probably. And you're probably not a genius, so you have to trust the talking (nodding) heads on CNBC and Fox Finance for direction. Or maybe your broker, or cabbie, or the shoeshine guy.

Stocks just keep going higher, and we all know that they shouldn't be where they are, especially when unemployment is still at 9.7% and the housing market is in the midst of a 10 year slump. Why complain? We're all getting richer.

Well, OK. Former VP Dick Cheney said "deficits don't matter." He also said the Iraqi resistance was in "their last throes." That was 2005. So, take your advice from him if you like, but many of us with just a little dose of common sense understand that deficits do matter and that Dick Cheney was - and is - a liar galore.

Dow 10,973.55, +46.48 (0.43%)
NASDAQ 2,429.53, +26.95 (1.12%)
S&P 500 1,187.44, +9.34 (0.79%)
NYSE Composite 7,600.93, +61.91 (0.82%)

Advancing issues socked it to decliners again, 4872-1690, almost a 3-1 margin; new highs beat new lows, 926-106. Volume, however, was so low that it now has become an embarrassment to any serious student of markets. The persistence of low volume in the market is indicative of one that is self-funded, and when the wheels come off, when the game is over, these very same self-funders will be rending each other's flesh, just like in 2008.

NYSE Volume 4,269,053,500
NASDAQ Volume 2,050,514,750

Crude oil broke through some key resistance and gained $1.75 on the day, closing at $86.62, the highest price in nearly 18 months. And it's done this in an environment full of surplus. We should expect Dick Cheney to come out of his crypt and declare that supply and demand doesn't matter, either.

Gold is closing in on its all-time high, gaining $7.80, to $1,132.90. Silver scored another 23 cents to finish at $18.10.

It's all just so perfect for a world full of suckers who don't want to feel any hardship.

Gathering Momentum Prior to Payroll Data... April Fools?

First, an apology for yesterday's misinformation, in which I stated that the non-farm payroll data would appear within 24 hours of yesterday's post. I was mistaken, having jumbled Thursday and Friday. The government jobs data for March is due out Friday morning - tomorrow - at 8:30 am. Markets are closed, so the number can slip into the mainstream without much reaction, until Monday, that is.

Traders were tripping over each other today to buy stocks. Not that there was any particular rationale; stocks are overpriced right where they are. However, since it was the first trading day of a new quarter, there were probably a good number of funds with cash on hand, so, instead of just letting that money take up space, they put it to work. One can't really blame the traders, brokers and fund managers. They just don't know how to do anything else.

Dow 10,927.07, +70.44 (0.65%)
NASDAQ 2,402.58, +4.62 (0.19%)
S&P 500 1,178.10, +8.67 (0.74%)
NYSE Composite 7,539.02, +91.22 (1.22%)

Gainers beat back losers, 4348-2107. There were 593 new highs, and 73 new lows. Volume was better than average on the NASDAQ, but down in the dumps on the NYSE.

NYSE Volume 4,502,472,000
NASDAQ Volume 2,281,689,000

Oil gained $1.11, to a 17-month high, at $84.87 per barrel. Gold shot up $11.80, to $1,125.10, and silver was up 38 cents, at $17.88.

Most of the enthusiasm could be tied to this morning's initial unemployment claims figure, which came in at 439,000, which was a little better than the 450,000 expected, and slightly lower than last week's revised 445,000.

Call me skeptical, but the initial claims numbers sure seem more alarming than reassuring. If the investor class can get jazzed over beating expectations by 11,000, which works out to a 3% beat, then I suppose that the Dow could gain 1000 points if it were ever revealed that the US was actually creating jobs instead of losing them.

Unemployment remains stubbornly high at 9.7%, and these weekly unemployment claims should be falling into the neighborhood of 200-340,000 in a stable economy. From the looks of things, we're nowhere close to that.

Wall Street loves the numbers, though, as they seem to love every number, finding a silver lining in just about any data, no matter how horrific. It is rumored that many of those working on Wall Street also believe in the Easter Bunny. He looks a lot like Ben Bernanke.

Employment Data Bangs Stocks

People in the Bronx were probably wondering what that sound was right about 8:15 am, emanating from the financial district across the East River. It was the collective groans of investors heard upon the release of this morning's ADP Private Employment Report [PDF] for March.

The private data compiled by the experts at ADP should be held in much higher regard than the government's overworked and over-adjusted non farms payroll data, though it is not. Too many people have come to the erroneous conclusion that the government data is reliable, when nothing could be further from the truth. ADP, which, unlike the government, has no agenda to promote, offers a clear view of who's hiring, who isn't and in which sectors jobs are either gaining or losing.

This morning's report showed a decline of 23,000 jobs from February to March, and also revised February's loss from 20,000 to 24,000. So, the company has reported a total of 47,000 job losses in the private sector over the past two months.

And we're supposed to be in a recovery. The pundits and promoters on CNBC and in the financial press will tell you that employment is a lagging indicator, but believing in this kind of lag is getting a little bit old, so to speak. The economy "officially" turned the corner out of recession in the third quarter of 2009 (Remember "cash for clunkers?"), so, according to the usually suspect "experts", the US began growing again in July of 2009 and has continued to accelerate, or so we're led to believe.

Third Quarter 2009 GDP, according to the final estimate provided by the BLS, was up 2.2%, and the 4th quarter was up by even more, something on the order of 5.6%, again, according to official government estimates, which begs the question of how an "estimate" can ever be deemed "official."

In any case, it's now been 9 full months since the economy began to "recover,' but nowhere are there new jobs to be found, accentuated by today's ADP report. Many investors are still not going to be convinced that the economy isn't growing until the government data is released on Friday, which happens to be the Christian holiday of Good Friday, thus, the markets will be closed as is the tradition.

Now, when the government comes out with its data, expected to show an increase of anywhere from 75,000 to 300,000 jobs, the real story will be underneath the headline number and it will say that most of the new jobs were temporary Census jobs which will end in August. So, the big question for tomorrow is whether investors will come to their senses and realize that the March jobs number is, in reality, going to be pretty much a stinker, and get out of he way of the coming sell-a-thon, or will they stand fast, close ranks and defend their stakes in corporate America?

The answer will be provided within the next 24 hours, but I'm betting, based on today's down-up-down pattern, that stocks won't be affected too badly, only because our insider friends at Goldman Sachs, JP Morgan, Merrill Lynch and Citigroup will be there to backstop any precipitous decline, to say nothing of the clandestine work of the PPP.

It should be fun to watch, but, the truth of the matter is that jobs aren't gaining, and 9 months is an awful long LAG, somewhat unbelievable.

Dow 10,856.63, -50.79 (0.47%)
NASDAQ 2,397.96, -12.73 (0.53%)
S&P 500 1,169.43, -3.84 (0.33%)
NYSE Composite 7,447.80, -12.92 (0.17%)

Declining issues laid all over advancers, 3885-2575. New highs: 337; new lows: 52. Nothing unusual there, but volume was a bit higher than normal, an ominous sign for the Bulls.

NYSE Volume 5,221,368,500
NASDAQ Volume 2,398,859,000

Commodity traders may be in an even deeper state of denial than equity traders. Oil for May delivery rose another $1.39 today, to $83.76. Gold gained $8.80, to $1,113.30 and silver was up 20 cents, to $17.51.

This is where it gets tricky. The dollar index was down pretty sharply on the jobs report, which pushed commodity prices higher, though it's a fool's trade, because there's simply slack demand, no inflation and therefore, all asset classes should be discounted, not appreciated. The US dollar will rise and fall in the currency markets for a boatload of different reasons, most of them speculative, but the deflationary spiral continues unabated.

For a better perspective, US treasury bonds offer some clues, as they were driven higher today, pushing down yields, a natural occurrence following a weak economic report. The bond market is screaming double-dip, while the commodity and equity markets - which require much less discipline - are still lining up on the side of economic recovery. They both can't be right, and the smart money would side with the bond sellers, who must demand more in a weakened situation.

The US is in better shape than Europe, though not by much. Probably the best places outside the US to put money to work would be Brazil or India, whose economies at somewhat detached from the US-Europe-China triad.

Dow Breaks Above 10,900 and Nobody Throws a Party

It's a good thing that the stock market indices are not true gauges of the strength of the American economy - or maybe it's too bad - because, based upon recent performance, Americans would all be out dancing in the streets because our economic conditions appear so rosy.

Stocks were up again on Tuesday, and if you think this is beginning to sound like the proverbial broken record, it's because in the month of March, stock indices have posted gains on 17 of 21 trading days. With Wednesday being the close of the month and the quarter, be prepared for more of the same, as mutual fund managers perform the quadrennial rite of "window dressing" - buying stocks with good recent track records in a very slimy and lame attempt to lure more investors into their funds.

The managers buy shares of the good stocks at the end of the quarters, then prepare their prospectuses with the recently-purchased stocks highlighted, only they fail to mention that they've held positions in them for less than 30 days, often, much less, as in, a week or so.

It's just more of the same on Wall Street. The more one learns about the business of selling shares to largely unsuspecting, unsophisticated people with more money than they know what to do with, the more one gets the feeling that it's just one big scam designed to separate those people from their money, and, more often than not, it's very successful.

So, stocks were up today, but not much, because everyone is waiting for the monthly jobs report, delivered dutifully the first Friday of every month by Wall Street's main enabler, the government. On Friday, the markets will be closed, but the Bureau of Labor Statistics will release their widely-anticipated and heavily-massaged Non farm Payroll report for March, which will include upwards of 250,000 new, temporary Census jobs. Expectations are for an increase of 200,000 jobs, which, if it's only that many, will be a bust of sorts, considering the government is kicking in a quarter million all by themselves. Whisper numbers suggest something on the order of 300,000, which would be a blow-out figure.

Whatever number is released, it will surely be hailed as a sign that the economy is recovering, as is everything these days. A bird craps on a car: sign of economic recovery; LeBron James scores 40 points: sign of economic recovery; the world does not end: sign of economic recovery. You get the picture.

Dow 10,907.42, +11.56 (0.11%)
NASDAQ 2,410.69, +6.33 (0.26%)
S&P 500 1,173.27, -0.05 (0.00%)
NYSE Composite 7,460.72, -4.18 (0.06%)

Advancers beat decliners again, 3437-3109, ho-hum. New highs bettered new lows, 414-50. Volume continued to flatten out. Only those with nothing better to do were trading, as has been the case for months.

NYSE Volume 4,546,991,000
NASDAQ Volume 2,073,122,875

Oil was higher by 20 cents, to $82.37. Gold was lower by $5.80, to $1,104.50. Silver dipped 6 cents to $17.32.

It's all so tawdry and stupid. Invest for retirement, like you're going to actually be healthy enough to enjoy it, right?