Bloomberg.com is revealing amazing moves down in global interest rates that are already at or near record lows (LINK to UK rates, click around for those of other major countries). Japanese JGB's have been collapsing, to 68 basis points on the 10-year and 186 bps on the 30-year. This with the threat to create 2% inflation! Just as happened when the US lost its AAA rating from S&P, now the UK has lost its AAA rating to Moody's and its interest rate structure has started to collapse. Following the equivocal Italian election, German interest rates, which had been trending down anyway, moved sharply lower.
If governments were really "stimulating" anything much, interest rates would be rising in response. This looks to me as though we need to watch out for an unwanted downturn in the global economy.
With taxes having risen beginning in January, and with about 1/2 of one percent of economic activity (annual rate) scheduled to be withdrawn from the US economy in a few days, can Treasury rates at home fail to drop in sympathy? If rates in major countries drop, and ours stay up, that would not be good for the president's goal to double exports.
Meanwhile, I lost the link, but I saw an article on the 'Net today quoting a JPM exec that an awful lot of bad deals were being done in commercial real estate by the competition that had run out of many sound loans to make. Of course, he (she?) said that JPM was only making good loans.
I have heard this from bankers before. The last time I personally heard this was from my Smith Barney broker, probably in 2007 (maybe in 2006), that BofA was making terrible loans, and was stealing business from Citigroup (which then owned Smith Barney). Well, it turned out that we were near the peak of the economic cycle, and both BofA and Citi were making horrible loans by the boatload.
While I am not at all a deflationist, I still think that if the stars align as they may be doing, we could see much lower interest rates come to the US by the end of 2014. After all, the trend is your friend until it ends.
J.P. Morgan Chase & Co. is struggling to extricate
itself from disastrous wagers by traders such as the "London whale," in a
sign that the size of its bets could bog down the bank's unwinding of
the trades and deepen its losses by billions of dollars.
The
nation's largest bank has said publicly that its losses on the trades
have surpassed $2 billion, and people familiar with the matter have said
they could over time reach $5 billion.
But the losses could be even bigger if the company sells its positions into a market that has turned against its positions, ...
I was going to make other comments. Absent dramatic words/action from an actor such as the ECB supervenes, I am going to treat the macro markets as if a whale is being eaten alive. I did dip a toe in the stock water again Friday, buying a little of Deere (DE). Deere had a "beat and raise" quarter. It is at 10X TTM earnings and yields 2.5%. I have been chasing it down for a couple of months now and think it goes much higher over time. Even my tiny remaining AAPL stock yields more than a 10-year Treasury. What has happened is that stock yields have finally begun exceeding Treasury yields (10 year bond, not the 30-year yet) as they always had before 1960 or so because of the "wrong thing", namely rising Treasury prices rather than rapidly rising dividends or more attractive (much lower) share prices. Oh well. The Japanese endgame, till now, was for the 10-year to yield 1%, the 30 year and stocks to yield 2%. Of course, stocks sporting rising dividends likely did the best.
In any case, my working hypothesis is that so long as the sharks are eating away at the whale, the good values that are appearing in the stock market will get better (LOL), and incredibly we could see yet more upside in the favored government bond prices.
Of course, no one necessarily rings a bell for the benefit of us outsiders when the whale is fully eaten, but sometimes inferences can be drawn.
