Treasury Market Smells a Rat: Steepest Yield Curve Since 2017 Despite QE

Market worrying about a phenomenon much worse than stagflation?

By Wolf Richter for WOLF STREET.

The 30-year Treasury yield has been rising for six days in a row, closing on Thursday at 1.61%, up from 1.41% on May 29, and up from 1.17% on April 20, and the highest since March 19, when the Fed was unleashing its multi-trillion dollar Everything Bubble Bailout.

The 20-year yield closed at 1.38%, the highest since March 4. The 10-year yield closed at 0.82%, the highest since March 26. Obviously, these yields are still in the financial repression torture basement, but the rises are showing some impatience in the market.

The short-term yields are just a hair above zero, with the one-month yield at 0.13%, which makes for a curiously steep yield curve. The red line shows Treasury yields at the close today, from the one-month yield to the 30-year yield. The blue line shows the yields on March 2, before the desperate rate cuts and bailouts. And the green line shows the yields on November 5, 2019:

This is the steepest yield curve since October 2017, when measured by the spread between the 2-year yield and the 30-year yield (30-year yield minus 2-year yield), which today widened to 1.37 percentage points, the widest since October 2017:

And this widening of the spread and thereby the steepening of the yield curve has been happening although the Fed has bought $1.6 trillion in Treasury securities since early March, as part of its $2.9 trillion Everything Bubble Bailout.

When a yield curve steepens, it is sometimes associated with the reaction in the market to a strong economy. And that would be a good thing. But this is the worst economy in our lifetimes, and any improvement – there will eventually be some improvement – will just make the economy a little less terrible.

Rather than seeing a strengthening economy, markets might be worrying about inflation, given all this money-printing in combination with trillions of dollars in government stimulus spending, even as the economy is in terrible shape.

Stagflation of the 1970s was a condition where the economy was in decent shape, compared to today’s economy, but just wasn’t growing much, while inflation was ballooning. Today’s economy is an unspeakable fiasco, and a big bout of inflation that would eviscerate the purchasing power of labor – of the lucky ones that still have jobs – would create a phenomenon far worse than stagflation.

The Fed would of course welcome a big bout of consumer-price inflation that will eviscerate the purchasing power of wages.

This inflation would allow it to declare victory over the fake deflation monster. The Fed is not likely to react to inflation, having already hammered home many times that interest rates are going to stay low for a long time. Markets see this too. If consumer-price inflation takes off, under the combined pressure from money-printing and stimulus-spending – while wages cannot keep up because of high unemployment, thus further crushing those that make a living by working – the Fed is going to pat itself on the back.

The economy is currently under a rare combination of simultaneous supply and demand shocks in many aspects as factories and service establishments were shut down, and as companies have slashed capacity, from airlines and container carriers to automakers, creating tight supply in some areas.

But there is also the demand shock, given that tens of millions of people have lost their jobs – but demand for consumer goods is being boosted by enormous stimulus spending. And this combination of supply and demand shocks, along with enormous stimulus spending and money-printing, can produce some peculiar results.

Inflation, at these still super-low long-term yields, would be a serious threat for bondholders as their bonds would lose much of their purchasing power over the term of the bond. And there would be very little yield to compensate them for that loss of purchasing power. The rise in yields, and the steepening of the yield curve might be an expression of a growing distaste for this type of scenario.

And then there is this: The Fed has been cutting back its purchases of Treasury securities. Its balance of Treasuries increased by $25 billion over the past week, according to its balance sheet today. A week ago, the balance increased by just $11 billion. This is still a lot of money-printing, but it’s way down from $300+ billion in the weeks at the end of March and early April, and it’s right back where it had been before the Fed kicked off its Everything Bubble bailout:

The Fed could still impose “yield curve control” over the market, where it essentially pegs long-term yields via forward guidance and by buying long-term bonds to maintain the peg. This is now being discussed and might happen later this year.

The Bank of Japan has been doing this for years. To dodge this, Japanese banks, pension funds, and other entities have chased yield overseas. This has turned Japanese banks into the most fervent buyers of Collateralized Loan Obligations (CLOs), backed by junk-rated leveraged loans issued by overleveraged US companies that are now toppling. Yield curve control has insidious side effects.

And in an inflationary scenario, yield curve control would make Treasuries as unappealing for long-term bondholders as a toxic-waste dump.

Gig workers now over 1/3 of “insured unemployed.” Gut-wrenching 1.6 million people got laid off in a week, others got their jobs back. Read… Week 11 of the U.S. Labor Market Collapse: Signs of Having Hit Bottom, Finally

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  141 comments for “Treasury Market Smells a Rat: Steepest Yield Curve Since 2017 Despite QE

  1. AllAssetBubble says:

    Isnt this caused by yield curve control?

    • Wolf Richter says:

      Not yet. There is no yield curve control yet.

      • By reference the first instance of yield curve control was Operation Twist, and it had a definite effect on markets.

        • polecat says:

          While Operation ‘PlebianTwistInTheWind’ twirls with such velocity, that when all is said and undone by Jivin Jerome … all that’s left will be the ground-up dusty remains of the lowlymokes!

          Good job Powell – may you reap your owned whirlwind!

        • Wolf Richter says:

          Ambrose Bierce,

          Operation Twist was not yield curve control. Yield curve control is a specific and stated “peg” on long-term yields. For example, the Fed will say that the 10-year yield should be around 0.5%, and that it will buy whatever it takes to keep it at 0.5%. That’s “yield curve control.” The BOJ is doing it now. The Fed first did it during WWII.

      • andy says:

        Wolf the yield curve may only be more controlled if they drew it with a pencil. Maybe they do :-]

      • Mr. Ralph Hiesey says:

        Someone needs to explain to me why ANYONE would buy a bond with 10 year term for 0.6% interest. REALLY? no inflation risk? REALLY? –maybe now a few others are starting to wonder.

        Here’s what I’ve FINALLY came up with after years of puzzlement:

        Step 1: 2008– Panicked Fed lowers interest rates to zero to goose the economy.

        But if interest rates go to zero–Hey! notice that means bonds have no advantage over cash. -Why not hold cash instead, without the credit risk?

        Step 2: 2010-2015 Fed offers to buy bonds via QE. Nice of them to trade my newly cheapened bonds instead for cash. Cash the Fed wants as spending in the economy. Wrong! Instead this cash is being held not to spend, but as desperate substitute as wealth holding instead for the now (getting worthless) bonds. Cash INSTANTLY spendable instead of a bond 10 years away from cash. EVIDENCE for this (from Fred–M1 velocity) is that after 10 years M1 velocity dropped from 10 to 5. Meaning on average twice as much non circulating cash is now being held instead of spent compared to 2008.

        In 2020 lots of combustable inflation causing cash–but safe for now–it’s being held as “wealth” instead of being spent. Still very low interest rates–meaning a $40T bond market much less desirable than before. Some bondholders want out. –so bond market starts to go to further crap from some selling. Fed gets panicked. To buy the stuff, boosts QE– (shhh.. please, not that bad word!)-

        Step 3: 2020 Fed offers lots more free cash–“we take crap for cash.” Relax, the Fed’s got our back! BUT the bond market is still $40T!! Lots more QE needed to bail! But no inflation yet–that cash is still being held as “safe” substitute for bonds held before. Another solved puzzle: Why US cash now wanted so much? Answer: to take place of bonds with N years delay before cash is available.

        Will this cash every catch fire? If inflation begins going up to rates significantly exceeding our pitiful bond yields–also with goods/services supply being curtailed by Covid 19….. I suspect it will be a rather LARGE fire. I hate to think what it will do to those in the bottom 70%. All depends on how loose that cash gets.

        • WES says:

          Ralph:

          The Fed monster is pushing everyone further and further out on a sagging branch!

        • Harvey Mushman says:

          “Someone needs to explain to me why ANYONE would buy a bond with 10 year term for 0.6% interest.”

          Isn’t the logic that if interest rates continue to drop, the value of the bond increases?

        • David Hall says:

          No inflation yet? Medical costs have risen.
          Hospitals do not even advertise the costs of their procedures. People can not shop around. Hospital costs have ruined people who were already sick to begin with.

        • Implicit says:

          Perhaps some relatively higher percentage of dollars are not being held, but being destroyed by debt destruction by the upper and middle upper class paying down debt. And that is off-setting the feds drive for inflation.
          Thus the velocity of money would not posses the same withheld power that could be implemented. Only the Fed can can continue increasing liquidity, but so far this inflation shows up the greatest in the bubblization of stocks.

        • Robert says:

          This is why the banks are so eager for all-digital money- so they take a little chunk of your savings at will (NIRP) with no fear of anyone’s putting cash in their mattresses by way of self-defense. What I find curious is that a few of the banks have been making predictions of higher gold prices- why they would want to give people the idea of buying gold- at least holding onto a store of value as long as the banks were giving them no return is a little odd- the last thing they want is people taking their money out of the bank. I smell a rat but I haven’t figured it out.
          But I will say this: the day U.S. banks pull NIRP I will be contributing to the defense fund of anyone who sets fire to one of them.

      • That’s a matter of semantics, or degree. They piled into short term treasuries less than a year ago, now they go rushing headlong out? Fed’s only mandate is stock prices, and they are going to get caught in a volatility trap. Why would they try to flatten the yield curve, and alternately help the banks, if they didn’t smell panic? They are destroying the economy, and the banks, but maybe they can help his reelection campaign, and he will magically fix those things. All really great market crashes happen after the YC begins to steepen. OP Twist was just a trial balloon, now we get the real thing, financial repression, or more of the same.

        • Robert says:

          Well, if you read the Fed charter, it says nothing about supporting the stock market (what it is doing is creating a Potemkin Village with its banks selectively pumping up a handful (what they are really doing is burning punters who have shorted obviously overpriced companies), but it does make reference to the need for “an elastic currency.” (all the while lying about inflation- let’s see how they like a constant-dollar diet in jail. They should not mind, there being no inflation and all)

  2. Rahim Wallani says:

    Hello Wolf! Long time reader but 1st comment ever.
    1. The convenience of the treasury market to smell a rat the day Nasdaq hits an intraday high with 40+ million unemployed. Regardless of the $1200 stimulus and PPP Loans. The 0.1% have been made whole and the robinhood investors are to thank.
    2. The Fed balloon seems to be growing out of Jerome’s control and soon the Toxic ballon will consume its blower!

    • Bobby Dents says:

      That wasn’t really a stimulus. Nor was it impressive in general to total nominal gdp ex shutdowns

    • Jerome says:

      Only USA prints life support and calls it stimulus. JPOW printer go BRRRRR! LOL

    • S says:

      >the robinhood investors are to thank<<

      Those Robinhood investors were given free "extra" money to play/gamble with including the $600 extra per week in unemployment combined with the deferment of some mortgage and student loan debt payments. Err, all that money came from the government. So "thank" the Fed and other government crazies.

  3. Steve M says:

    “If consumer-price inflation takes off…thus further crushing those that make a living by working – the Fed is going to pat itself on the back.”

    Just offering a “wow!”

    They might not be able to grow an economy, but they’re sure trying mighty hard to grow a protest.

    While patting their backs, I’d just recommend they not turn them toward crushed workers.

    • wkevinw says:

      The Fed/Expert Economists (using “expert” lightly), have always said they are trying to provide “wealth effect”. That is aimed at the higher wealth/income population.

      Then, the theory says, the rest of the “real economy” is supposed to use this fuel to improve.

      With globalization, the fuel leaks out. It goes to low cost (where the theory says it will go!). Low cost labor is the biggest issue- so low cost labor inside and outside the borders drive these changes. (Note- this is the biggest issue in the world at the moment.)

      As such, the type of inflation that the Fed/experts want is “wage push”. With the labor issues described as above, wage push inflation in the US will not happen.

      If there is just commodity inflation, yep, you’ll have a lot of the usual economic distress and maybe social unrest.

      • Cas127 says:

        Wk,

        The inconceivable thing is that DC has failed to learn this for over 20 years despite horrible US economic performances.

        The truth is likely that DC is, in aggregate, little more than a mental defective.

        DC is so thoroughly lobotomized, intellectually and morally, that is basically incapable of anything other than hitting the big green “**PRINT**” button with its padded head.

      • Ralph Hiesey says:

        Wkevinw —

        Quite agree–
        Wage push inflation not likely to be the problem. I think the loose inflation money will be coming from those who are more wealthy who are now holding cash as wealth now. They will trying to figure out how to get what they possibly can from what they thought savings.

        I could be talking about myself– I have no idea what the answer is. Buy another house? That would eliminate buying a house for many who need one who are not rich.

        Social unrest from huge number of people in serious financial stress sounds to me like a real possibility. We who are more fortunate need to begin to find real solutions

        • wkevinw says:

          Real Solution= reform the labor market in the US.

          It really is that simple.

          The problem is the usual: follow the money. There are interests in both parties with lots of money and power that do not want that.

          It is the biggest issue in the past several decades.

        • Crazy talk. I say we keep pushing XXXTREME CAPITALISM!!! and see if we can start a Cultural Revolution of our own. Chairman Maocasio Cortez will lead us out of this nightmare of personal property and isolating individualism.

    • Implicit says:

      With low GDP part the next inflated category will be all kinds of taxes, so gov/municipal politicians and workers can get paid, and their pensions supported. Even if house prices come down property taxes will go through the roof.

  4. GotCollateral says:

    Jerome and Muchkin have decided that on behalf of the tax payer, the federal government needs to take on credit risk of 12 years of corporate malfeasance, both stateside and abroad (if denominated in US and traded in US securities)… using liquidity to mask solvency (or increasingly their lack of)

    Cheap party trick only fooling the crackheads already high off Jeromes rocks

  5. MonkeyBusiness says:

    Tomorrow’s job report will be astonishing, but the MSM will try their best to spin it in a positive way. They should try their best not to be too cheerful because if it’s better than expected, then the Fed should raise rates soon no?

    • Bobby Dents says:

      Like it matters. Those reports can’t tell the difference between lockdowns and actual recession. They won’t be useful for years.

    • Nicko2 says:

      40% of African Americans are unemployed, over 50% of everyone have less than $1000 in a savings account. Biden is now polling ahead of Trump in Texas. The White House has become The Forbidden City. A long hot summer of American unrest and uncertainty is ahead of us.

      • Petunia says:

        Don’t believe the polls. He is still more popular than her. Wait for the big switcheroo in Milwaukee and then you’ll see something worth seeing.

    • Chris says:

      They willl spin it, the way they spin all bad news, “hey, the actual wasn’t as bad as the estimates.” Case closed, go back to sleep sheeple.

      • Ed says:

        Is this correct?

        If you set aside the far right and left wing media, who always spin for their political allies and audience, doesn’t most of the media simply like a story which maximizes attention and ad revenue?

        The media makes money when there’s a hurricane or extraordinary economic reports. Downplaying those would seem foolish.

        • Ed says:

          Maybe you mean the financial cable channels?

          The brokers and investment advisors would certainly like everyone to keep buying and maybe CNBC is their ally, if they are the dominant ad buyers there.

        • Ed says:

          (I am sure that’s what you meant. I read newspapers mainly which don’t get dominated by investment advisor and bank ad buys. The papers do not downplay economic bad news!)

          Cheers,

        • 91B20 1stCav (AUS) says:

          ‘…if it bleeds, it leads…’ has ALWAYS sold papers, and now, electronic news. Just give the people what they want to know, i.e. the drama that is, and has been, constant in the human condition over the centuries…

          may we all find a better day.

    • MonkeyBusiness says:

      Hoo hoo. Look at the unemployment report. The Fed has to hike soon right?

  6. Bobby Dents says:

    I don’t see much rise in consumer prices. More likely the opposite.

  7. DR DOOM says:

    Can’t stop now. Time is getting late in the fiat cycle. Jerome praying for inflation but can’t get it. Deflationary data is piling up. Gold gets whacked and comes back . Cognitive Dissonace is comforting when in an insular enviroment.Money printer still going Brrrrrrrrrr…. And has to keep going Brrrrrrrrrrrr….There is no talk of normalization of rates and withdrawal of liquidity. That lie from the Fed worked after 2009. But it won’t work now. Even the janitor at the Fed knows that. It can’t stop,won’t stop, it’s freaking maddening ….Brrrrrrrr…..Brrrrrrr……. The sound of deflationary foot steps may be getting louder. No Bankruptcy allowed Brrrrrrr….No reallocation of capital due to corporate Zombie Bond failure …….Brrrrrrrrrr.

  8. bungee says:

    And in an inflationary scenario, yield curve control would make Treasuries as unappealing for long-term bondholders as a toxic-waste dump.

    in the past, when foreign private sector found treasuries to be that unappealing, the foreign public sector (“For. Official” in TIC data) would step in and buy. they’ve now been flat since 2014 and these countries also have lots of dollar denominated debts. they will welcome inflation and wont prop things up this time.

    imho the dragging, slow, long-term devaluation of the dollar is a pipe-dream. it’ll blow all at once, staight to heck. how some people can watch this stuff and not buy gold is a real head-scratcher.

    thanks for the yeild curve update, Wolf!

  9. Willy2 says:

    – I looked at the 30 year t-bond future and it made a bubble in March (2020). That’s for me the sign that the 39 year bull market in T-bonds has come to an end. Perhaps we will see another/final short term spike lower (in yields).
    – It doesn’t matter that the FED (or any other central bank) has monetized a lot of T-bonds. The government still has to pay principal & interest on those bonds and that’s why the government still needs taxpayer money.

  10. Willy2 says:

    – Michael pettis has the opinion that falling and rising interest rates have nothing to with the action of a central bank. But has everything to do with of how high income inequality is. Rising rates = falling income inequality.

    • Ted says:

      I am pretty sure Pettis doesn’t agree with what you say he believes. He does think high levels of income inequality can drive down interest rates (mainly in advanced economies), but he doesn’t say it is the only thing that matters.

  11. Willy2 says:

    – Keep in mind: Rising interest rates are (very) DEFLATIONARY !!!!

    • Harvey Mushman says:

      Is that because people have an incentive to keep their money in the bank rather than spending it?

      Or are thinking in terms of the formula for real interest rate?
      Where you plug in the nominal interest and the inflation rate.

  12. CZ says:

    US govt will have to issue tons of long term bonds for the foreseeable future. Supply will outstrip demand and may have already considering the rising rates.

    I’ve read commentary about how this will be good for mortgage REITs, pocketing the spread.

  13. Harvey Cotton says:

    Well, if yields become so much lower than the expected inflation rate then we will be like Japan and have no government bond market. The Fed can then buy all of the Treasurys at whatever price they want. If the Fed’s balance sheet became too high, they can either create a Special Purpose Vehicle and offload those to the SPV like it was a ‘bad bank’, or it can reset the interest rate at -100% and forgive the principle. I mean, if the Fed is a lawless entity unto itself anyway, bound by neither the laws of Congress or economics, anything is possible.

  14. Tsuda says:

    Just like the 70s, the last unkind blow will be taxes on money losing bond investors.

    The only thing we learn from history is we learn nothing from history.

  15. John says:

    Wolf,
    Why do I think if one doesn’t have assets now, one never will? Am I thinking wrong? Will it be free money handouts soon? Seems like it is going that way. What a mess. Thank you for your smarts!

    • sunny129 says:

      Own diversified and uncorrelated assets, b/c THINGS always change, when least expected.

  16. historicus says:

    The biggest trade was right there for all to see if they had the guts..

    Sell long bonds, buy stocks…..
    you are doing just what the central bankers are doing….

  17. Lance Manly says:

    Where is a good pitchfork when you need one.

  18. Michael Engel says:

    1) The front end is more volatile than the long duration.
    2) On Nov 5 2019 1M was 1.56%, on Mar 2020 it was 2.51%. On Mar 2020 it was NR.
    3) Within a year, 1M plunged from 2.51% down to (-) 0.12%, up to 0.13%.
    4) The change of rates on the zero line is high. 1M was anchored to the zero line for 7 years and now back to 0. A 5Y round trip from (+)0% to (-)0%.
    5) If u take a LT cluster of ALL UST rates, from 1M to 30Y, ==> in 2020 US rates are fused together.
    6) There is no inflation despite Fed multi stimulation.
    7) Retail investors bring their money to the stock market fun casino, which is open 24h/d without using face masks. NDX 100 is trying to breach a cool number > 10,000. 10,000 feet peaks are cold and windy. Since NDX is not a stand alone mountain, its an upthrust.
    8) From Sept 2002(L) @826 to 2K on Oct 2007, back to a higher low @1K on Nov 2008(L) and a bubble to 9,736 feet on Feb 2020(H), on the way to 10K peak.
    9) 10K is a cool number to remember. Its fresh like cool cigarettes. Market makers selling at retail prices, buying at wholesale prices, after the crash, making good living.

  19. Max Power says:

    With respect to “those lucky to have jobs”…

    It should be noted that although they may be “lucky” to be working, many are experiencing pay cuts or have had their anticipated pay raises cancelled. For example, the fiscal year for most state and local governments runs July through June. Many of them have already cancelled any planned annual pay raises which were to be effective in July. This effects millions of workers.

    So, even if inflation remains relatively tame, these workers’ purchasing power would be eroded more than it would have were it not for the pandemic.

  20. Lisa_Hooker says:

    Sometimes throwing petrol on the fire helps. Sometimes it burns your eyebrows off. Sometimes much worse. No one, and I mean no one, knows where this economy is going after all this skullduggery. Not the tippy-top, not the workers at the bottom. Tea leaves? Pigeon entrails? I Ching? Historical charts from another time and different economy?

    • VintageVNvet says:

      Lisa,
      I just can’t imagine that the ”flim flam many” will not be able to come up with enough new tricks to keep the current ”bread and circus” going pretty much as it has been for the last few decades, with the rich getting richer and the rest of us hanging on or in one way or another. I’ll be happy to believe otherwise as soon as the moon is actually proven to be made of cheese, etc.
      Reading that the ‘income inequality” is the same or slightly worse today than it was in the ”roaring twenties”,,, IMHO we can expect something similar as to ”where this economy is going…” eventually; in other words, depression with WPA, etc.; then war of some sort; then massive inflation to pay for all of the above.
      In what’s left of my mind (after it being blown away by the reckless and feckless behaviours of SO many guv mint folks at the federal level, especially over the last few months,) our real challenge is figuring out ”when” rather than where or what.
      Let’s face it, sooner or later we, that is ”WE the PEEDONs” will have to ”pay the piper,” even if we never got to dance or even were allowed into the dance hall at all.

  21. timbers says:

    Most of the over all stimulus so far has gone to the top of the economic ladder, not the bottom 80% or 90%. So I don’t understand how that can be inflationary. Or stimulus based on what we’ve used stimulus to be in past economic crisis.

    And am I missing something? Because I’d have to say we have not yet seen a actual stimulus program, just a few cash and outs.

    No new jobs programs. No added infrastructure programs. No large government programs to put working folks back to work and cash in hand.

    Here’s what a stimulus program might look like. FDR did just some of these things:

    Civilian Conservation Corps (CCC)
    Civil Works Administration (CWA)
    Federal Housing Administration (FHA)
    Federal Security Agency (FSA)
    Home Owners’ Loan Corporation (HOLC)
    National Industrial Recovery Act (NIRA)
    Public Works Administration (PWA)
    Social Security Act (SSA)
    Tennessee Valley Authority (TVA)
    Works Progress Administration (WPA)

    Lyndon Johnson, in response the civil rights protests, launched many additional programs such as Medicare and Medicaid and a welfare act that drastically reduced poverty in the US. Just some of the act listed paved the way robust Federal spending on a variety of fronts.

    Higher Education Act
    Water Quality Act
    Civil Rights Act
    Medical Care Act
    National Endowment Act
    Model Cities Act

    I am not seeing programs that were used in response to past civil unrest and depression, in today’s policy responses. Why even the previous administration – one of the most fiscally conservative and pro austerity in history – had programs to counter the Great Recession, though many have since noted it was too small for what was called for:

    The American Recovery and Reinvestment Act

    The difference between many of the above acts vs what is being done now, is that a much greater amount went to working folks. In contrast, most of what is being done goes the very wealthy folks, investors, finance, and Wall Street.

    So it’s really not stimulus as we’ve used in the past.

    • Paulo says:

      There cannot be civilian stimulus job creation/infrastructure projects in the beginning, middle, or end of a pandemic. It is like passing out smokes in a powder magazine. Besides, modern infrastructure work will require a lot of pre-fab const and machine time. They won’t be building highway supports and walls with hand placed rip rap like they did in the thirites, or digging sewer lines with pick and shovel.

      Up above someone asked that if people didn’t already have assets, would they be able to acquire them going forward? I have thought a lot about this same question the last few weeks and have concluded a lot of the angst is a product of our instant world and expectations. My parents had some assets, after a lifetime of barely getting by and raising a family. Same for me. There isn’t a magic investment formula where working people make a sudden killing and are home free and on easy street in their forties. It takes a plan that doesn’t include restaurant dining, expensive vacations, or unnecessary debt and/or purchases. Apparently, that is all bad for a consumer society.

      We can always learn coding. hah ha hah. Not.

      • Jonathan says:

        “We can always learn coding”

        Which is basically an nefarious plan promoted by Google et al to Uberify programming jobs to slave wages.

        Be VERY afraid when capitalists are trying to be kind.

    • Timbers,

      With all due respect, most of these programs delivered limited success. Given the need for brevity here, please just consider the Higher Education Act. This program destroyed market and other natural forces within higher education. We now have an oversupply of ‘college graduates’, many who will never see a positive ROI on their investment. This program was also the genesis of the student loan debacle which is destroying many young folks’ financial future.

      Limited Government – Protect Life Liberty and Property. I would be happy if the government could handle these three tasks.

      • RD Blakeslee says:

        Looking even farther back and on a lower economic rung: I remember workers on the PWA payroll being called “poor workers of America in the 1930s. People “on the dole” were not very industrious.

      • Portlander says:

        How do you gauge over-supply by education cohort? Surely not by average income, which is far higher for college graduates.

        Is the “over supply” of college graduates greater than that for those with only high school diplomas?

        As Duncan and Case point out, lack of college degree has many impacts (deleterious) on subsequent quality of life, by stats on suicide, drug overdoses, and many other health issues. It’s not just “ROI”, but a good degree in a good field is a good investment with many economic and other benefits. Including the ability to argue one’s point well.

        • Harvey Mushman says:

          All true!
          But don’t forget about the trades. One of my friends went to a vocational school to learn heating, air conditioning, and refrigeration. Now (25 years later) he manages the systems on three large office buildings in Santa Monica. It’s a great job. He’s an intelligent guy. Didn’t go to college.

        • VintageVNvet says:

          Harvey is correct:
          A friend who went to college for one year and left to go back to work is now independent contractor making three times what our other friend makes with bachelor and masters degrees.
          And, if memory serves, saying hello to a journey level plumber of the licensed and insured sort these days in SF bay area costs somewhat around $170 for the first 20 minutes, etc.
          Soon, if this trend continues, it will cost somewhat similar even in ”flyover” areas.

    • Tom20 says:

      I remember another who thought “”shovel ready” was the answer to our problems.

      In today’s world that means 3 yrs of engineering fees and then maybe….shovel ready.

      • WES says:

        Tom:

        You forgot environmental studies.

        • VintageVNvet says:

          we can only hope that current pres, etc., have just voided a lot of the red tape, at least at fed level, so that the projects he wants to authorize leading up to election can actually be started this fiscal year ending 30sep, eh
          major environmental nannies are having a fit, far shore, but it is possible that these projects could start, especially if pres hands them out to his supporter/followers as is likely, instead of the many months now required even to get and award bids

    • Happy1 says:

      The great society programs weren’t intended to be stimulus, they were not directed at propping up an economic downturn. And they have resulted in vastly higher public debt that destroys our ability to save for the future.

      And FDRs programs were widely viewed by both himself and his opposition as failures in the late 30s during the “2nd dip” of the Great Depression.

  22. Fat Chewer. says:

    Mr Powell has promised low interest rates for a long time into the future. Leonard Cohen saw the future. It is murder, he told us.

  23. Fat Chewer. says:

    Wolf, could you give us an update on the market value of that rusty old bicycle, please? I found a rusty old bike for $40 on Gumtree. I would say that’s an elevated price considering that usually you can’t give them away. I’m keeping my eye on that potential investment. I noticed on Gumtree that one potential buyer, a certain “Jay Pee”, has already messaged the owner. I’d better move fast or he will beat me to it.

  24. NoFreeLunch says:

    A steeper yield curve is a friend of bank and insurance stocks. Maybe time to dust off that playbook.

    • Jdog says:

      Can’t imagine insurance companies are going to have a good year with all the claims they are facing…..

      • RD Blakeslee says:

        Actually, my insurance company (and others, I hear) has refunded part of my premium for two month’s running – lower claims due to limited driving, they say.

  25. Just Some Random Guy says:

    And can we all finally agree that “experts” know nothing about anything? The “experts” were predicting a 19% UE rate for May. They were off just a weeeeee little bit. LOL But I’m sure next month we will all be on pins and needles waiting to hear what the “experts” think.

  26. California Bob says:

    Headlines today all say ‘Unemployment Down’ (13.3%), ‘2.5M Jobs Created.’

    What to make of this?

    • Duane says:

      I read in the BLS report that 245,000 job gains were from people returning to work at dental offices. I am scheduled to have my teeth cleaned next week so I am good to go.

    • lenert says:

      You have to go back to 2011 to find this level. Use Fred, All Employees, Total Nonfarm but set your ordinate to about 2000. At the end there you’ll see that tiny little v which is a definite possibility when starting with just three points.

      If you die before the next report, definitely v-shaped.

      Most most likely K-shaped – some shit ain’t coming back.

  27. urblintz says:

    Does anyone here actually believe the jobs report?

    • Joe in LA says:

      Doesn’t matter, it will be used as reason to not extend Federal unemployment benefits.

    • intosh says:

      Maybe no one here does but it doesn’t matter. It is what the markets believe. You can bet all you want on reality; you will likely end up losing, as many, who’ve bet on reality, have in the last several years.

  28. SocalJim says:

    2.5M jobs added last month. That is one reason the yield curve is backing up … the market was bracing for this. And, the market is also bracing for inflation. As I said at the lows of the market in March … this is the fastest V shaped recovery in the history of the world. However, the govt goofed a little with too much money printing. Recently, I am seeing a surge of homes pending. There is another inning or two left in this economic cycle. It is going to be 4 more years. The protests are just another political hoax that will backfire badly. The market also figured this out and rallied on the protests.

    • VeryAmused says:

      The only thing the market is rallying on is the 10+ trillion worldwide credit spigot. If it stops the economy goes poof. TPTB know this so the stimulus increases weekly.

      Just watch as everything opens up and very few people show up for anything that is not free or essential.

      The debt burden of the masses has reached critical mass.

      I really want to be wrong.

    • Phoenix_Ikki says:

      “The protests are just another political hoax that will backfire badly.”

      Just wow, I think this tells me a lot about how you view the world and the market. Surely does explain why you are so strong on the v shape recovery narrative.

      • Yertrippin says:

        P_I- Thank you for responding to this. While I love the general lack of politics on this site, the fact that such an odious comment nearly slid by is foul. I’ll chip in on a mirror for the poor fellow.

        • SocalJim says:

          Rule 1 about investing. Put your politics aside. If you let your politics and PC think cloud you mind, you will lose your money. I have political opinions about the protests, but when it comes to investing, they don’t matter. In reality, the market read the protests as a political hoax that should benefit the president so it rallied. That is the right investment call. While you may have political feelings, those should be left for politico. Wolfstreet is about investing.

    • tom15 says:

      C’mon Jim, get on the doom & gloom train. We are tied to real estate & home construction. We are slammed out here in flyover country.
      We have been open for over 3 weeks, bars are full, main street is busy.
      Time for a friday night fish fry & happy hour. Shockingly 3 weeks later, and the streets are not littered with corpses from us covidiots. Must be the old fashioned.

      • Wolf Richter says:

        tom15,

        Relax dude. This thingy takes time to spread. You won’t see any stunning results in “3 weeks.” Sorry you’re disappointed, but we could have told you that. The first confirmed case in California was in early January, which was discovered later. There may have been earlier cases that haven’t been discovered yet. Look at the infection curves. So be patient.

        • Tom20 says:

          I’m relaxed. Great dinner & company. Not at all disappointed.
          I love my freedoms. Its a heck of a full moon tonight. Time to get off of here and go enjoy it. I’ll leave the doom & gloom to the pros.

        • Max Power says:

          Yeah. Florida really let loose in Memorial Day. Now seeing a huge spike in cases. Too early to tell if a significant trend is building but it’s not looking good.

        • LessonIsNeverTry says:

          Enjoy it while you can Tom20. All any of us can do.

          “Its a heck of a full moon tonight. Time to get off of here and go enjoy it.” – lycanthrope alert!

        • GoodOlDan says:

          Recent spikes in absolute number of new cases is primarily due to greatly increased numbers of tests performed. Percentage of positive test results is decreasing (at least for now).

      • Sergey says:

        @MaxPower Check your info. Civic testing in Florida ramped up in the last week or two. % positive is still ~5%

    • Dave says:

      Seems the ‘Market’ is the only smart one around here!

  29. Brant Lee says:

    We can bypass today’s economy figures and ride the stock market rocket, apparently, these problems will just go away. At least a few people can ignore it anyway. I’m hearing 12% unemployment, some say 20%.
    Oil went from -zero to 40 in no time, they must be magicians.

    • Phoenix_Ikki says:

      I am waiting for the FED to come out and announce stop of QE and raise the interest rate now since market is back to near all time high and we added 2.5M jobs in May..

  30. c smith says:

    “But this is the worst economy in our lifetimes…”

    Soon to be followed by the BEST economy in our lifetimes, which makes the “worst” moniker nearly meaningless.

    • VeryAmused says:

      I would love to hear how the best economy of our lifetimes is coming soon.

      Is Trump now posting here?

  31. gorbachev says:

    I will never understand how all of it fits together.

    I do know my grocery bill seems to have doubled.I think

    that’s inflation.

    • VintageVNvet says:

      maybe so gorby, but maybe no… i went shopping yesterday at the same ”natural foods” place been going last 4 years,,, current fave wine, a SP albarino, was the same as dec2019 when it first came to my attention, everything else same as i can remember last 4 years; talking basics but all organics, etc.
      maybe your food bill has change from takeout/dine in to all at home??
      OTOH, been watching for years some food brands doing the technique of downsizing, say from 64oz to 59oz, put the new one on sale for a month or so, then raise it to the same or more of price for the old 64… this been going on a long time, especially with regards the change over from USA gal, qt, pint, etc., in liquidity positions, to metric where the net liquid amount is much lower but price the same

      • Dave Kunkel says:

        This is not new. About 60 years ago I used to occasionally stop by the corner drugstore and buy a candy bar before starting to my paper route.

        Over the next couple of years the price of the candy bar stayed the same, the package size stayed the same, but the candy bar itself kept shrinking.

        • Harvey Mushman says:

          So true. I started playing little league baseball back in around 1971. Before the season started I had to sell those “Worlds Finest” chocolate bars for $1.00 each.

          They are still selling those “Worlds Finest” chocolate bars… but they are about 1/5 the size.

      • polecat says:

        I just racked 10 gallons of polecat’s finest- a honey melomel .. courtesy of our bees, fruit trees, berries, and vines .. better than Anything purchased commercially! Gets better with age, too.

        … doing my bit at hedging some of the dishonorable Fed’s inflationary disfunction. At least I’ll sleep well .. ‘;]

  32. Fed came in with 100B+ in REPO today in order to boost the market 2%. (If they bring 400B Monday, will it be 4%?) There is nothing left but naked self interest on the part of all elected officials. Powell is a toady of the president. If a $1000 check doesn’t keep rioters off the WH lawn, military police will. There is no shame, no sense of public service, only self aggrandizement, and self preservation. The CDC is saving hospitals (businesses) not people, after they threw their employees under the bus. Now all employees join them. The virus as liberal conspiracy was a golden opportunity for the 1% to bust up a tight labor market, and access a cool trillion in taxpayer loans. Potus neatly dropped that line of reasoning in his nightly tweets. The yield curve is where it was in 2000 (virus is Y2K in the redux) when YC spiked, with markets ATH (but not for long). The terrorists attacked and we all shifted focus to a common exogenous enemy. They always have a plan.

    • Wolf Richter says:

      The Fed has been offering $500 billion in overnight repos EVERY DAY since early March, plus $500 billion in term repos a few times a week. There was a period when the Fed was offering $1 trillion a day in repos, and $1.5 trillion on some days. But there have been hardly any takers in two months. Now we’re getting some nibbles.

      What’s important to understand here is that the Fed has been offering the SAME amount in repos every day; the difference you’re seeing is what the market is taking.

      So the wrong question is why the Fed is increasing the repos (it is not).

      The right question is why there is more demand in the market for more repos.

      Another big thing to keep in mind: some big term repos were/are unwinding, and the market might be replacing them with overnight repos.

      • Petunia says:

        Businesses are starting to open up with many new regulations that need to be adhered to, which costs money. Wouldn’t be surprised if all credit lines of small business owners are maxed out, just to get their businesses open again. Unexpected demand for funding usually comes from repo.

  33. MonkeyBusiness says:

    BLS reports that 345K NEW businesses have been formed during the Coronavirus. It’s probably counting those new account signups at Shopify.

    Our statistical geniuses are making the Chinese blush. “Let’s form a business during a pandemic!!!”

    • lenert says:

      Good time to import face coverings from China and sell them online.

      • MonkeyBusiness says:

        Sure. Or they counted demonstrating as a job. That’s more likely.

        I mean if replacing windows is a job, breaking them should count too right?

    • Dave says:

      MonkeyBusiness, if you want to be a scammer, learn from the best in the World! Wallstreet!

  34. clyde the snide says:

    Central banks going full retard.

    Markets SCREAMING back to highs.

    Toldja.

  35. Cas127 says:

    “these yields are still in the financial repression torture basement”

    And playing the role of the Gimp for the last 20 years, US savers.

    Here’s to the day when Zed’s dead, baby.

  36. Noelck says:

    The ppp requirements for employment rehiring are through June 30th and the airlines must keep employees through Sept 30th.

    There are many companies buying out employees and reducing employee wages.

    I hope everyone remembers how much back patting everyone was doing when this job report came out. This is so surreal.

  37. Bobber says:

    My allocation to stocks ramped quickly from 25% to 40% because of gains over this last month. I bought some BBB companies at the recent bottom, and those stocks went up 50 to 100%. As a result, I trimmed my stocks today and bought a little more gold. The remainder will be kept as additional dry powder, earning .5% in the ST bond market.

    It pays to be more afraid of immediate and potentially severe threats (deflation) than distant and more moderate threats (inflation), but you have to respect both in your investment allocations.

    Rates on the long end would have to get back up in the +3% range before I’d even consider buying a LT bond.

    • akiddy111 says:

      Small caps have had an enormous giddy up over the last several weeks. I honestly have not seen a rally as powerful as this in the space since 2013. Before that maybe 2003. Quite exciting.

      It has been a snapback rally strong enough to take your head off. Very exciting too. But i agree, time to trim some of those hospitality and leisure stocks that were practically given away during the fear virus of mid march.

      Have a nice weekend.

    • Ying says:

      Where do you get 5% on ST bond? Which one is safer ?

  38. Phil says:

    In my own extended family, all well educated and solidly middle class, unemployment right now is like 75%, although it’s obscured by various permutations of living on borrowed time via furloughs, companies living off savings and grants and loans, scraping by with dramatically decreased business, etc etc. I doubt our experience is so unique. These official numbers are likely completely divorced from reality, because they are not capable of capturing the bewildering variety of situations in this novel environment.

    • 91B20 1stCav (AUS) says:

      Phil-the ‘novel-environment’ unemployment-numbers book-cooking has existed for over a generation, now. Filed with the other ‘novel environments’ that have emerged with the disregard and/or perversion of GAAP-accounting practices at every level (including the average American’s wholesale embrace of revolving credit to maintain an unrealistically high living standard in the face of wage-stagnation since the 1980’s), general bewilderment from this constant smoke-popping is unavoidable, some may even say…planned? (Wolf and associates’ constant and invaluable callouts on ‘creative accounting’ are what attracted me to, and keep me this site. Though not a financial player, I do like to know the numbers on those trucks that seem intent on reducing me to ‘collateral damage’…).

      May we all find a better day.

      • 91B20 1stCav (AUS) says:

        ack-typo-“…and keep me on, this site.” Apologies.

        Again, a better day to all…

  39. Tom Stone says:

    It used to be called “Political Economy” for good reason.
    Economic decisions at the top are decided on the basis of sometimes rigid
    ideologies as they come into conflict with political realities.
    A significant percentage of those who lost their jobs will become homeless well before the November election.
    2 Million?, 4 Million?, More?
    It’s going to have an effect on policy at many levels and I very much doubt that the response will be even moderately sane or competent.

  40. TrevorM says:

    Will housing prices go up or down?

    If inflation rises, prices for everything else go up, and there’s less money for mortgage, so down.

    However, if inflation rises, prices of raw materials and labor (a bit) go up, so up.

    Which way??

  41. Ratotoulllie says:

    Interest rates are rising

    The Chinese have quit buying USA debt

    Google “Year of the Rat”.

    “Safety in the USD is now an oxymoron, with USA burning”

    IMHO ETF bonds funds denominated in USD are going to implode.

  42. Sit23 says:

    Interest rates cannot go up. If the whole world owes each other $550 trillion then a 1% rise means $5.5 trillion extra has to be found to cover the rise. I repeat. Interest rates cannot rise.

  43. Dave says:

    What would happen if the Government forgave 50% of each students loan for people 29 and under (you have to have graduated from college or university) so that they aren’t in perpetual debt.

    Why:
    – the price of education is inflated
    – 50% not a 100% because there is some value in your degree/diploma also you may have played (spent on stuff not related to school) with some of that money
    – 29 and under so that you can get a fresh start
    – the government has pissed away trillions to incompetent business so why not help some people that can use it. What’s another TRILLION in the big scheme of things
    – It may not be fair but who said life was fair?

    BTW: I would never think of something like this if I didn’t see the government doing this over and over for the big guys and gals!

    Thoughts?

    • lenert says:

      Same reason overinflated mortgage principals weren’t written down in 08 – Big people lose money.

  44. CZ says:

    Today’s good job numbers were cooked by administration to give GOP an excuse to kill any further emergency assistance. Just sayin’.

  45. Marc D. says:

    I think gold and many other commodities may be a good investment here, with all the potential inflation out there, down the road. Not oil, though. There’s still an oversupply problem with oil, globally.

  46. Robert says:

    “And then there is this: The Fed has been cutting back its purchases of Treasury securities. Its balance of Treasuries increased by $25 billion over the past week, according to its balance sheet today.”

    Yes, and the stock market sees rising yields as a sign of the economy growing and imminent inflation. This is initially good for stocks.

    I would think the Fed will continue to allow at least long term yields to rise to herd investors into the stock market. The stock market is the only thing that matters after all.

  47. lisa2020 says:

    https://fsapps.fiscal.treasury.gov/dts/files/20060400.pdf

    There’s of course a whole lot of itemization on that few pages from the Treasury that are attention grabbers.

    Three that I think are gonna be hot items are:
    1. that little “unclassified” item at the bottom of page one, on the “withdrawals”.
    2. Table 4- Federal Tax Deposits- just how low can they go?
    3. Notice the little “-” signs, especially for Estate and Gift Tax Deposits?
    4. AND the real clincher is TableIII-C of the Footnotes.

    It will be a real thrill to see just what those numbers are by Oct., 2020.

    I hear a whole lot of scurrying and devouring all the cookie crumbs, must be some pretty sneaky rats up to totally no good.

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