Math is like gravity. Feelings, hopes, perspectives … nothing can change it.
Mathematics requires stocks to go lower.
There is no subjectivity, opinion, or subjective calculation involved.
The federal government is putting a ceiling on bond prices. This is a fact.
Take out the U.S. Treasury selling bonds to fund spending (and to fund tax cuts), and then have the Fed continue to buy, or extend upon bonds that it owns, and bonds would be higher- and yields lower- period. It’s math. To say that the United States federal government- the U.S. Treasury and the Federal Reserve- do not affect bond prices, would be to ignore basic logic and simple math.
Simply put, investors do not want yields where they are today- they want them lower. The math says so.
Thus, the yield curve would be flatter than it is “butfor” governmental influence and intervention- period (and I am not even including my perception, which is a pretty objective and logical one, that investors would buy more bonds if the government came out of the calculation- in which case bonds would be even higher, and yields even lower than they would be if the government simply came out of the equation. In other words, if the government stopped intervening- yields would go lower).
So, at a time where investors would have the yield curve nearly flat, or flat, or inverted- it isn’t. Yields are much higher than investors- than the free floating market- would like. If this continues, stocks will go lower and lower- not just because bond yields are higher (which is reason enough) but because investors want yields lower than where they even are today- and can’t get it done. Instead they are going higher than where they are today- just the opposite. As yields go higher, instead, investors will jump ship on stocks because they have absolutely no control over yields, or over their investment hedges on the economy through bonds. If the free-floating bond market is held captive, and the results get worse and worse (higher and higher yields due to government, rather than due to investor actions) investors will panic. If investors can’t manage risk by diversifying into bonds, they will have to manage risk by selling stocks.
As the Treasury and the Fed cause yields to rise over and above the place where, today, investors want the yield to be (lower than it is), that divergence will cause investors more and more distress. And, again, by saying “As the Treasury and the Fed cause yields to rise” what I mean is not only through Treasury auctions and quantitative tightening, but also causing investors to avoid bonds they would otherwise desire “butfor” these influences. So, “all” or much of future bond prices declines, at this stage, can, arguably, be blamed on the government. This is not so far-fetched. The stock market decline shows that investors want lower yields. If the government keeps causing prices to go the other way, investors will panic.
If you look at the S&P in 2018 (minus Amazon)- you will see that the slow, grinding panic has already started. Let’s hope it does not grow larger, and happen faster- but it probably will … and soon.
One could argue that there is always a government bid in markets, particular treasuries- but there is no history of such large quantitative easing that was unwound- and, particularly, not at a time where the Treasury is actively and routinely funding tax cuts. It’s too much governmental interference and too much at the same time. It is distorting prices and investor sentiment- significantly. If capex doesn’t lead to wage growth and growth in consumer spending, there is going to be a big problem.
Neil S. Siskind, Esq., President
The Siskind Law Firm
Tel: 646.530.0006
Neil Siskind is the Founder & Chairman of The Fatherhood Assignment
Learn more at: http://www.neil-siskind-the-fatherhood-assignment.org/
Neil Siskind is the Conservator of the Neil S. Siskind Nature Preserve
The Neil S. Siskind Nature Preserve is over 7 acres of environmentally-pristine waterfront land in a magnificent setting along New York’s majestic Hudson River. The Preserve includes a variety of species of animal and plant life, and is a precious example of the thoughtful maintenance of New York’s priceless open spaces. The land’s uses are limited to outdoor recreation such as hiking and climbing, and the study of ecology, nature and land use. The Neil S. Siskind Nature Preserve allows for the intelligent contemplation of our valuable natural resources and the most effective ways to maximize them and keep them protected.
Neil Siskind, Founder, “National Fatherhood Day” – March 29th
To encourage recognition of the needs of boys and girls who are living without fathers or father-figures in their lives.
Read about the non-profits and charities whose missions Neil Siskind supports and promotes: www.neilsiskindsupports.com
Caring is Free®
You can read what clients and associates say about Neil Siskind at: http://siskindlawfirm.com/neil-siskind-bio/.
Neil Siskind’s Volunteer Work:
– Memorial Sloan Kettering Cancer Center, Volunteer
– Memorial Sloan Kettering Cancer Center, My Fundraiser- Help Neil Siskindhelp children with cancer to be more comfortable: http://mskcc.convio.net/site/TR?px=3182108&fr_id=2632&pg=personal
– Make-A Wish Foundation- Help Neil Siskind make sick children’s wishes come true by creating your own fundraiser: Neil-Siskind/Help-Make-A-Child-Smile.htm
– DonorsChoose.org- Donate to one of my needy public classrooms: http://www.donorschoose.org/NeilSiskindGiving
– Champion Children– We seek to inspire people through stories of children who have overcome challenges: http://siskindlawfirm.com/neil-siskind-champion-children/
Neil Siskind’s Pro Bono Work:
– Saving Senior Citizens- Protecting New York’s senior citizens from fraud and financial abuse www.savingseniorcitizens.com
– Senior FreeStart Business– Pro Bono: We seek to help put senior citizens in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/
– Veteran FreeStart Business– Pro Bono: We seek to help put Iraq and Afghanistan war veterans in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/
– In development: The Neil S. Siskind School of Hope: A free school to teach inner-city youths the skills of entrepreneurship and importance of economic self-sufficiency.
Neil Siskind’s Government Work:
– Suffolk County District Attorney’s Office, Boston, MA, 1994, Intern
– Office of Senator Christopher J. Dodd, Newington, CT, 1992, Intern
– Hartford County Department of Probation, Hartford, CT, 1991, Intern
Neil Siskind’s Community Assistance:
Financed & operated a legal clinic providing low-cost legal services to struggling Long Islanders during the recession to help clients resolve debt, organize finances, and launch new businesses.
Neil Siskind’s Professional Curriculum Vitae: http://neilsiskind.com/
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