iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
18,474 Blog Posts

The Last Time Interest Rates Were Going to Be the End of Times — Stocks Surged

Yield fags need to be stopped, once and for all. I don’t know about you, but I am sick and tired of these people shitting on my parade — bringing their problem to the table and crying about it like little bitches. If you’re employed on a fixed income desk, listen to me now: go fuck yourself.

As the 10yr treasury approaches 3%, the first time since the Taper Tantrum crisis of 2013, bond nerds are out in full force proclaiming it to be the end of the bull market. Last time yields cocksized up against the 3% mark, stocks fucking raged higher with retard strength. Hell, 2013 was the best year of all time. We made so much money in stocks that year, Le Fly was lighting cigars with bank notes.

Here’s the top story on CNBC now, warning people of dark times because MUH 3% was going to convince people to ditch their stocks in favor of fucking bonds.

“I think there’s still a lot to go,” the firm’s chief investment officer said Thursday on CNBC’s “Futures Now.” “[The] 10-Year Treasury yield has been below fair value for nearly ten years thanks in large part to central bank bond purchasing that’s been going on.”

His thoughts came as the 10-Year yield, which moves inversely to debt prices, made another run to 3 percent. On Friday, the benchmark rate hit its highest level in more than 4 years.

“If you take a look long-term, where the 10-Year Treasury typically trades, it matches nominal [economic growth],” Ablin said. “And, the last nominal [growth] number we got in December of last year suggested that the 10-Year Treasury should be about 4.1 [percent] not 2.9,” he added.

Stocks historically become less attractive as yields move higher. In the easy money environment since the financial crisis, low yields created great demand for stocks.

“The fact is that the bond market has been in this tug-o-war for capital for the last ten years with one arm tied behind its back,” Ablin said. “The equity market has essentially been the only child of that relationship.”

With the Federal Reserve normalizing its interest rate policy and the European Central Bank hinting it’ll soon do the same thing, Ablin expects Treasuries to become more attractive.

“We see the 2-Year [Treasury] now nearly at more than 2.4 percent. So, yields are starting to get more attractive on the front end where the Federal Reserve has its influence,” he noted. Shorter-dated yields surged to its highest level since September 2008. In the past year, the yield has surged more than 100 percent.

Ablin, who’s bullish on the 2-Year, said that not even a “fantastic” earnings season will prevent the stock market troubles likely coming down the pike.

“The fact is the European Central Bank has already said they’re likely to end their program in September. So, I think the bond market is starting to sense that, and that’s why we’re seeing rates rise there,” Ablin said.

Now for the facts, via WSJ circa 2013.

Since 1967, during periods when bond yields have risen while confidence has increased (i.e., a “good” yield rise) average annualized stock price returns have been almost 13% and despite rising bond yields, the stock market has only declined about one-third of the time. For comparison, when yields have risen and confidence has declined, the stock market has declined nearly one-half the time and with an average annualized price return of -6.4%.

In short, yields rise when the economy is doing well. When the economy does well, earnings are increasing, which eventually results in higher stock prices. Ignore the bonds geeks and embrace the idea that inflation might be something worth having — as long as it’s under 3%.

If you enjoy the content at iBankCoin, please follow us on Twitter

14 comments

  1. moosh

    Blockchain or fucking bonds…

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  2. probucks

    Rome didn’t fall in a day…. Give it time, higher rates WILL be the end of stocks, mark my words

    • 2
    • 0
    • 0 Deem this to be "Fake News"
  3. moosh

    Fucking bonds. Silver is about to go ape.

    • 1
    • 0
    • 0 Deem this to be "Fake News"
  4. stripper

    Wasn’t the rally back then due to additional QE? We not gonna git that this time. They might ease up unwinding on the long end just to avoid panic. You know, kick the can down the road. I bet they let it cross 3% to gauge market reaction B4 they do anything.

    • 1
    • 0
    • 0 Deem this to be "Fake News"
    • moosh

      You betting on monstrous QE, to the never seen before tune, hitting markets when it “stops”?

      • 0
      • 0
      • 0 Deem this to be "Fake News"
  5. Lyndon Keltner

    FWIW, I have quite a few buy orders for ZB (sub-142
    18) to be filled before 5PM tomorrow *and* 143’23 prints. Here I did the calculations based on the classic models. The 3% level may very well add some skewness to the price movements that are not quantifiable.

    • 0
    • 0
    • 0 Deem this to be "Fake News"
    • Lyndon Keltner

      Everything is moving along as planned. Got some orders filled. I’m very grateful.

      • 1
      • 0
      • 0 Deem this to be "Fake News"
  6. the_wolf

    bull ended in feb, higher rates will just accelerate the inevitable,………..
    and its a long way down
    where’s showtime,….?

    • 1
    • 0
    • 0 Deem this to be "Fake News"
  7. Lyndon Keltner

    Well, bond sellers wuss’d out. They had a shot at 3% earlier.

    Now let the reversion commence.

    • 1
    • 0
    • 0 Deem this to be "Fake News"
  8. numbersgame

    “yields have risen while confidence has increased…returns have been almost 13%”
    “yields have risen and confidence has declined… return of -6.4%.”
    “In short, yields rise when the economy is doing well. When the economy does well, earnings are increasing, which eventually results in higher stock prices.”

    Fly, please note the difference between *rising* confidence and *high* confidence. COnfidence is surely high in the economy, but I’d argue that it has already peaked and is falling, not rising.

    In other words, waht is important isn’t whether the economy is doing *well*, it is wheter the economy is *improving.* Of course, this makes perfect sense bacuase the stock market prices everything in, so if the economy is doing well, that is priced in. If the economy is doing well, but then soemting changes so it is still doing well, but not *as well as befreo*. That is new inforamtion that should take prices down.

    “doign well”

    • 0
    • 0
    • 0 Deem this to be "Fake News"