We do not believe that investors fully appreciate how fragile the U.S. economy is. Our view is that the U.S. economy is in a recession and that this period will be followed by long-term muted growth given: 1.) the enormous U.S. Government debt load ($30.4 trillion), 2.) persistent price inflation, 3.) a consumption-driven economy rather … Continue reading The U.S. Economy Is Long-Term Fragile
Tag: Treasury yields
10-year Treasury yields sit around 2.72% and will climb higher as the Fed: a.) lifts the Fed Funds Rate and, b.) trims its balance sheet (i.e. quantitative tightening "QT"). There is no scenario in which the Fed executes QT only to have Treasury yields move lower. It is simply a question of supply and demand. … Continue reading Treasury Yields Will Only Move In One Direction
“Given the low level of interest rates, there’s no issue about the United States being able to service its debt at this time or in the foreseeable future,” - Fed Chair Jerome Powell. Maintaining low rates to minimize debt service expense is top of mind with the Fed as we wrote last week and as … Continue reading Powell Just Told Us Why Interest Rates Will Remain Low
The simple math is that the Federal Government is pumping $1.9 Trillion into the U.S. Economy. Treasury has issued 90 million stimulus payments worth $242 billion. More money in consumers' pockets plus new Treasury bond supply plus relaxing of COVID restrictions translates to higher Treasury bond yields. The higher yields will result in less Technology … Continue reading More Inflation Is Coming
Rising yields will slow debt-funded M&A activity. We expect the pace of Technology M&A to slow as companies review M&A pipelines and landscapes, alternative M&A deal structures and alternative capital allocation choices in the face of rising Treasury yields. Technology valuations are near an all-time high. A fresh $1.9 Trillion print could send equity valuations … Continue reading Rising Yields Will Slow M&A Activity
We have said it on our TEK2day Podcast and in conversations with some of you that the Fed's next move is to accelerate its QE effort to control long bond yields. This may occur as soon as this month. An interest rate hike is not coming this year in our view. There is far too … Continue reading The Fed’s Next Move Is To Ramp QE, Not Raise Rates.
We recently wrote that weening the equity market and Americans off of easy money will be difficult. We expect The Federal Reserve to march in lockstep with Congress and Treasury rather than act as the independent check on Government the Fed was meant to be. Thus, we expect monetary policy to remain loose for the … Continue reading The Fed’s Evolution From Independent Agency to Treasury Subsidiary