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Global Bond Yields Rise As Investor's Prepare For Lift Off

Published 06/07/2015, 03:12 AM
Updated 07/09/2023, 06:31 AM

A speculator is a man who observes the future, and acts before it occurs.

Bernard M. Baruch

(Speculate- invest in stocks, property, or other ventures in the hope of gain but with the risk of loss.)

The world is coming to an end. No doubt about it. I am not even going to delve into the advance of ISIS in nearly every country of the paradise known as the Middle East. Nope. Let's concentrate on what really matters to the citizens of the globe. You got it, that is right, the crucial variable we all have to pay attention to, and that is the interest rate on the 10-Year Treasury Bond. It shattered the astronomical rate of 2.39% yesterday (closing at a demanding 2.40%) If you really want to expand your universe, add in the interest rate on the 10-Year German bund (sitting at a whopping .85%- oh my gosh). Yes, sirree, whatever will we do now?

Pardon my sarcasm, but in the financial world, these are actually some of the thoughts which are reflected in actions of investors who believe interest rates are headed to 20%. Clearly, they forget about the first grade math number line where there are a few places between 2 and 20, unless my teacher had it wrong. Whoops. She had it right. Just checked with my daughter. Anyway, when the May jobs report came in at 280,000 jobs yesterday, it was confirmation for many that the economy is strong and the due date for interest rate lift off will be September. As such, the sell off on Thursday was validated, at least for those who sold.

Gazing into the crystal ball, most analysts would pontificate a stronger dollar when investors front run the fed. No, they wouldn't do that, would they? Of course, they would. For oil, with a fully stocked world and production running non stop, the premonition prices are headed back to $100 a barrel any time soon is probably a fantasy. Still, rig counts have been chopped a ton, so at some point, production numbers, at least in the U.S, are going to start falling. How soon and how much remains to be seen. Store that in your hard drive for further consideration. With respect to gold, hard to see how all that glitters is going to jump if interest rates start levitating. Don't forget, all of this is based on the idea interest rates are going to the moon. Oh yes, absent mindedly, I almost neglected the stock market. My attention span is not as good as it once was. When you turn 48, things get hazy.

Anyway, equities have run into a slumbering patch over the last few weeks. As usual, summer volumes are slight as the well heeled are too busy in the Hamptons to be bothered. Much concern remains around valuations, especially in any frothy areas like biotechnology, internet security, social networking, or pre-public behemoths. When Snapchat founder Evan Spiegel starts telling people things are out of whack, well, it is like Moses coming down from the mountain. Lest Mr. Spiegel forget who the current environment favors the most. Hint, hint, Evan, look in the mirror. Overall, in most areas of the market, with interest rates climbing to the exorbitant levels of maybe 3% by the end of the year, to pay 18x forward earnings is probably not unreasonable. Shhhh, don't tell Moses, err, Mr. Spiegel.

In others news this week, the onslaught of merger and acquisition activity continues with no letup. It seems like every day a new deal gets announced. Word came down this week Dish Networks and T-Mobile (NYSE:TMUS) are talking about doing the deed. Such a combination makes perfect sense because T-Mobile needs capacity and Dish needs, well, customers for their treasure trove of, yup, spectrum. The CEO's of both companies are noted rebels, so such a pairing would, at the very least, prove entertaining. Still, with Verizon (NYSE:VZ)and AT&T (NYSE:T) probably going nowhere any time soon, the competition in this domain is formidable, to say the least.

Greece remains a thorn in the side of investors as it's leadership trys to get the ECB to adopt a Greek alternative to a bridge loan. June is probably the point of no return for the conflict as Greece cannot pay it's obligations based on it's current liquidity state. For the rest of the world, we are forced to pay attention to an entity which is does not deserve our gaze. Which is just how the Greeks like it, I suspect.

Elsewhere, markets in China continue to skyrocket and skeptics point to those indexes as proof bubbles are forming. No less an authority like John Malone commented this week that Central banks and cheap money is fueling much of the race to acquire assets, or speculate. Mr. Malone brought up you might as well go to Las Vegas and take a shot. With the Belmont being run in a few hours today, I am confident plenty of people will do just that. I already live in Las Vegas, so the speculative fever is just as common in this town as it is in financial markets. Imagine that.

Disclaimer: Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

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