A “C’mon Main” Forward –
I walked into a Whataburger yesterday and approached the counter to find a customer describing the burger he wanted to the cashier. I’m not sure how long he’d been standing there but he was taking this young lady for a ride as I heard, “no lettuce – no tomato – no pickles – no mustard – no cheese”, and to make this even more excruciating to listen to she had to repeat everything he didn’t want on his burger back to him? Cruel. I almost tapped him on the shoulder and said, “maybe you don’t want a burger at all, maybe you’d prefer an ice cream cone?” I mean my God, just tell her what you DO WANT ON YOUR BURGER rather than going through every frigging ingredient (which was already perfectly designed to begin with). I stepped back not knowing whether she was able to place a burger patty on it or not.

Then I noticed he sat in the most secluded corner of the restaurant and when I glanced over trying to figure out what did meet his pallet’s approval as far as a burger was concerned, I noticed that he was dipping French fries into ketchup so I guess he does like at least one condiment. Was Wendy’s closed? Wendy is the home of ketchup on everything!

Are You Prepared for the 7 Handle? Oh, C’mon Main!
I was pondering today, what if the yield on the 10-year U.S. Treasury climbed as high as 7%? It’s been trading in the neighborhood between a 3.75 to 4% handle in recent sessions. Understand a couple things, there is no interest rate in this country that is more important than that on the 10-year Treasury bond. The reason for this is that banks use the yield on the 10-year treasury as a proxy to set their mortgage loan rates. Credit card issuers consider the 10-year treasury yield in adjusting their already ridiculously high rates for cardholders. Analysts use the 10-year in their forecasting models and of course the Federal Reserve uses this as some of its input data to determine various monetary policy decisions. Anyway, it is important and thus it is monitored daily.

The last time the 10-year Treasury yielded 7% or more the year was 1992. That was 30 years ago! You might ask yourself, how could this even happen when rates have been trending down for the better part of 40+ years? Well it can, you heard it first here. It hasn’t taken too long to get to 4% and the Federal Reserve has yet to really tighten the money supply. It’s reached a yield of 4% just based on three rate hikes plus some Fed rhetoric. Now what if they turn up the dial [which will be required] going forward? There are a few factors in this hypothesis that one should consider, which makes this tightening cycle “different this time”:

– The Federal Reserve waited for at least 9 months to one year and even maintained QE programs while inflation was roaring, making their initial response way late.
– The supply chain shutdowns across the world due to COVID and it’s variances created a “squeeze” response as demand has returned to normal levels.
– The federal government’s payment assistance programs dropped helicopter money into the hands of people who weren’t working at all.
– The Fed cannot simply sit on the sidelines as inflation continues to pervade across all goods and services, they must continue to hike rates.
– To my knowledge the Fed has yet to reduce the supply of money in the system, once these rate hikes kick in and the supply of money falls, watch out!
– The millions of U.S. job openings will work against the Fed’s efforts to control inflation, making this cycle of runaway high prices much more difficult to reverse.
– A ratings downgrade from one or more major bond raters would spell the death knell for the U.S. Treasury market and spill over into all markets across the world as yields on U.S. bonds would pop much higher instantly!

A 7-handle is certainly not out of the question for U.S. 10-year Treasury bond. Remember you heard it here first that froth doesn’t necessarily go away on its own like the foam on a beerhead. Waiting it out is not effective in cases such as these, inflation is pervasive and counter force reaction must be implemented. Meanwhile financial managers on Wall St. should never ever be able to dissuade the Fed [imparting politics] from acting because they are “at-risk” of losing tons of investor capital that they haphazardly placed in longer term U.S. treasuries. Suck it up fellas, you have no one to blame but yourselves. Go back to your clients and tell them the truth about your services, they lost money with you in the bond market because you’re not any good at what they hired you to do. It’s as simple as you’re not worth what you’re charging your clients to manage their money. 😉

I really believe at this point the 10-year has a good chance of reaching a 7 handle before this cycle of inflation ends. It’s just that the players in the bond market have yet to let it go and face reality. These are the same idiots who spent $billions to get Inflationary Joe in the White House… I wonder if they would like Orange Man back about now? Oh, C’mon Main! 🙂