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Chart of the Day: 3-Month Treasury Yield Surpasses S&P 500 Yield

For the first time in a decade, the yield on three-month treasuries exceeds that of S&P 500 dividends.

The above chart is from the Financial Times article Authers’ Note: Hunting for yields is getting easier.

John Authers also notes the "Dividend Aristocrats" of the S&P 500 — the stocks with the highest and most reliable dividend yields — are finding that they now have competition from 2-year Treasury bonds.

Authers makes a number of interesting points.

  1. The Beige Book features far more references to inflation than it did when inflation was last persistently above the Fed's target.
  2. The intensity of references to inflation on the Google search engine is moving up.
  3. Net share buybacks have been negligible. It looks like the bulk of last quarter’s repurchases went on stock options.

It's increasingly easy to stick with my prognosis: Inflation is in the Rear-View Mirror.

The Nearly Unanimous Opinion: Inflation Has Arrived, reinforced today, adds to my conviction.

Mike "Mish" Shedlcok

Sometimes, the consensus is correct, and being contrarian, is incorrect. It would not surprise me to see both inflation and interest rates continue upward throughout 2018.

In a world completely saturated with $USD denominated debt, it will not take much longer for interest rates, even at current levels, to do an enormous amount of economic/financial damage.

Anyone who thinks that interest rates are headed any more than slightly higher from here (before collapsing back to near ZERO) is going to find themselves
sorely mistaken.

1

Europe is not challenging the US. It isn't only a matter of trade, there are also other aspects such as technology transfers. Since the very beginning of human history, technological dominance has always been related to military supremacy and security. China has been the biggest economy of the world before the industrial revolution and now is slowly rising back to challenge the dominance of the West. Now think of what would it mean China, still a state-driven socialist economy. getting the lead in AI, self-driving military vehicles and so on.

Did you actually pay any attention to the article above? It's about yield and inflation, not the cr@p you've been blathering on about. A state-driven socialist economy is not about to take the lead, except in someone's dreams. They have thus far stolen and replicated technology from elsewhere so I wouldn't hold my breath.

The mere fact the author thinks rates will continue down when so many pensions are grossly unfunded is laughable. The Fed did appease the IMF and foreign entities for too long in order to keep foreign balance sheets with too much dollar-based debts from exploding. However, with the pension crisis now on their doorstep, get ready for the sovereign default dominoes to start falling. Rates may knee jerk down temporarily during a crisis, but the multi-decades trend higher in rates has already started. How do rates decline when socialism is collapsing?

Rates will ultimately rise to meet the overall rate of devaluation of the currency.

"The mere fact the author thinks rates will continue down when so many pensions are grossly unfunded is laughable."

That statement is laughable. Pension plans are heavily in equities. They also have 7% or more plan assumptions. 3% or even 5% will not do it. And equities will get smashed. Please think!

Most well-run pensions throughout the world are very diversified and invest for the long run (think 75 years). In addition to equities and bonds, they also invest in real estate, infrastructure, mines, farmland, forests, etc. etc. They also often have Private Equity divisions that buy entire companies. Having said that, they do rely on interest rates and inflation rates to project their long-run viability (again, over 75 years or more). I understand that many on this site are not aware of the actuarial math that is required to fully understand how large pension funds work. I also understand that many US pension funds appear to be poorly run, underfunded, and over-optimistic in their long-term projections.

Bam Man, I more or less agree with your ideas, though I believe 2018 will see rates rise and they won’t reverse course till sometime in 2019.

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