Market action was about as hum-drum as a Monday could be. Once again, there were no blockbuster mergers or acquisitions even though speculators had piled-in last Friday in anticipation for as much. Crude prices broke above $69/barrel--the highest level since last September. A one-dollar spike in oil to a 9-month high, and three from the all-time high barely spooked the bulls. Even though a one-dollar per barrel drop in recent weeks and months would appear to be just another excuse to throw a serious party.
Below is an excellent account of the current bullish spin as it concerns the recent spike in Treasury interest rates. This is a snippet from Stephen Giauque's most recent insightful and entertaining e-mail that had been forwarded to me last Friday. I think he nails it:
"Larry Kudlow is "spinning" the rate spike as a "growth surprise" and thus the bond market is just pricing-in stronger economic growth. The logic these guys use is stunning. Bad news, is always, somehow, just more good news if only you look at it "correctly." The underlying logic of this is so flimsy one need only take a look at a chart of the 10 and 30—year Treasury rates from November 1994 thru March 2000. During that span, the yield on the 10-year Treasury rate dropped from a high of 7.88% to 4.69% in March 2000---that’s a 40% drop in the cost of money. Is it really a surprise that that environment of dropping interest rates was accompanied by one of the biggest and longest bull markets in history? Again, dropping rates encourages further leveraging and speculation. Granted, it ended in tears because Alan Greenspan wanted to be loved and didn’t want to be blamed for ending that party even though it was quite obvious by 1998 that things were getting out of control—kind of like today’s private equity activity. But for much of that span, economic growth was more "real" than it is now--and again. rates were dropping. But one variable that appears to be correlated with that period and the current period was the direction of the dollar. The dollar had enjoyed a serious bull market of its own during that '94 to 2000 period. Now, the dollar is in a bear market and rates are beginning to rise. There is far more evidence that this spike in rates is a dollar issue, and not a "growth" issue. But it’s amazing how easily this logic is allowed to be twisted and then you hear it regurgitated throughout the press over and over again. Sometimes it almost feels like "talking points" being controlled by a political campaign."
Below is an excellent account of the current bullish spin as it concerns the recent spike in Treasury interest rates. This is a snippet from Stephen Giauque's most recent insightful and entertaining e-mail that had been forwarded to me last Friday. I think he nails it:
"Larry Kudlow is "spinning" the rate spike as a "growth surprise" and thus the bond market is just pricing-in stronger economic growth. The logic these guys use is stunning. Bad news, is always, somehow, just more good news if only you look at it "correctly." The underlying logic of this is so flimsy one need only take a look at a chart of the 10 and 30—year Treasury rates from November 1994 thru March 2000. During that span, the yield on the 10-year Treasury rate dropped from a high of 7.88% to 4.69% in March 2000---that’s a 40% drop in the cost of money. Is it really a surprise that that environment of dropping interest rates was accompanied by one of the biggest and longest bull markets in history? Again, dropping rates encourages further leveraging and speculation. Granted, it ended in tears because Alan Greenspan wanted to be loved and didn’t want to be blamed for ending that party even though it was quite obvious by 1998 that things were getting out of control—kind of like today’s private equity activity. But for much of that span, economic growth was more "real" than it is now--and again. rates were dropping. But one variable that appears to be correlated with that period and the current period was the direction of the dollar. The dollar had enjoyed a serious bull market of its own during that '94 to 2000 period. Now, the dollar is in a bear market and rates are beginning to rise. There is far more evidence that this spike in rates is a dollar issue, and not a "growth" issue. But it’s amazing how easily this logic is allowed to be twisted and then you hear it regurgitated throughout the press over and over again. Sometimes it almost feels like "talking points" being controlled by a political campaign."
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