The Interventionists In Congress And In Central Banks Are Always Looking Out For Their Interests, Not The Public Interest

When I say that current financial market conditions today are unstable, causing capital markets to be the same and its not getting better, students of the market should refer to the Table and Methodology of the Fed’s Daily Treasury Yield Curve Rates.

You will note the extremely low treasury rates and also the steep decline in rates this month (Aug 1-14)

http://www.ustreas.gov/offices/domestic-finance/debt-management/interest…

Noteworthy also is the statement on CMTs:

Negative Yields and Nominal Constant Maturity Treasury Series Rates (CMTs). Current financial market conditions, in conjunction with extraordinary low levels of interest rates, have resulted in negative yields for some Treasury securities trading in the secondary market. Negative yields for Treasury securities most often reflect highly technical factors in Treasury markets related to the cash and repurchase agreement markets, and are at times unrelated to the time value of money… As such, Treasury will restrict the use of negative input yields for securities used in deriving interest rates for the Treasury nominal Constant Maturity Treasury series (CMTs). Any CMT input points with negative yields will be reset to zero percent prior to use as inputs in the CMT derivation.

At the top right corner of the page is a link to “Historical Data”

http://www.ustreas.gov/offices/domestic-finance/debt-management/interest…

Using 20 years data for August 14 (+ or - one day), I compiled the following table.

Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr

2009 0.10 0.18 0.26 0.44 1.07 1.61 2.51 3.17 3.55 4.33 4.41
2008 1.76 1.89 2.00 2.14 2.45 2.72 3.15 3.46 3.89 4.55 4.52
2007 4.62 4.64 4.81 4.67 4.39 4.42 4.51 4.60 4.73 5.06 4.99
2006 5.15 5.12 5.24 5.17 5.01 4.98 4.95 4.96 5.00 5.21 5.12
2005 3.28 3.54 3.82 3.91 4.08 4.11 4.15 4.20 4.27 4.53 (NA)
2004 1.32 1.44 1.72 1.97 2.47 2.85 3.42 3.85 4.22 5.02 (NA)
2003 0.96 0.96 1.06 1.31 1.86 2.47 3.42 4.05 4.55 5.49 (NA)
2002 1.68 1.64 1.61 1.77 2.12 2.47 3.19 3.74 4.06 5.03 (NA)
2001 3.54 3.43 3.38 3.46 3.74 4.03 4.59 4.87 4.97 5.61 5.51
2000 (NA) 6.27 6.36 6.21 6.25 6.20 6.07 6.05 5.78 6.00 5.70
1999 (NA) 4.74 5.07 5.19 5.71 5.81 5.88 6.21 5.98 6.45 6.09
1998 (NA) 5.03 5.13 5.25 5.34 5.30 5.34 5.42 5.40 5.67 5.55
1997 (NA) 5.34 5.42 5.57 5.92 6.03 6.13 6.27 6.27 6.65 6.56
1996 (NA) 5.16 5.31 5.61 5.97 6.14 6.33 6.46 6.58 6.92 6.78
1995 (NA) 5.60 5.69 5.81 6.05 6.19 6.36 6.54 6.59 7.06 6.96
1994 (NA) 4.72 5.19 5.64 6.26 6.58 6.96 7.14 7.30 7.68 7.51
1993 (NA) 3.09 3.22 3.43 4.00 4.38 5.08 5.41 5.72 (NA) 6.35
1992 (NA) 3.13 3.26 3.40 4.14 4.67 5.54 6.06 6.53 (NA) 7.33
1991 (NA) 5.45 5.60 5.70 6.37 6.75 7.37 7.66 7.82 (NA) 8.08
1990 (NA) 7.68 7.72 7.69 7.94 8.08 8.34 8.55 8.66 (NA) 8.78

Average
20yr 2.49 3.95 4.09 4.22 4.56 4.79 5.16 5.43 5.59 5.70 6.27
10yr 2.49 2.91 3.03 3.11 3.34 3.59 4.00 4.30 4.50 5.08 5.04

Now 0.10 0.18 0.26 0.44 1.07 1.61 2.51 3.17 3.55 4.33 4.41

On the face of it, the financial system is currently unstable.

You know that I often say that the capital market is not a vacuum. In other words, all prices depend on other prices. Because the world’s governments have adopted a fractional reserve banking system that helps the bankers grow their business when times are good, and central bankers reign them in when needed, the biggest driver in the economy and in capital markets is monetary policy. Those who rule the cash, rule the market, which is why the free market component refers to the others (i.e., our controllers if you will) as the Interventionists.

In any case, last evening on the island where I live there was an electricity black-out for several hours. Just like money drives the market, electricity drives our lives or for most of us anyway. Without electricity, those who are dependent on it are forced to live differently. Food starts thawing in the freezer, so I started to cook meat (by candle light, using a gas stove). Internet service died. The TV went off. Computers went on battery power, which needed to be conserved. Cellphones, requiring electrical re-charging, which was not available, had to be minimally used in order to conserve power for possible emergency use. Yes, candles are not an adequate source of light and no power at all. My house, which in the dark, looks like something out of a Star Wars movie with all the brightly colored LED lights, was black. I felt like I was in a vacuum and I might as well have been floating in outer space. Powerless. I had to adapt.

Same thing in the market. The financial system has broken down, and while the Interventionists tell us things are now suddenly good again, the data tells us they are lying. In fact, the data in the past week or two tells us the financial system is getting worse. As you can see, the Fed is now referring in their report to negative yields.

Under the circumstances, a prudent man must adapt. As of today, and until the market conditions stabilize, I am not prepared to invest more than 25% or so of the buying power in the accounts I manage.

Moreover, in order to avoid the impact of extreme volatility, and in fact take advantage of it to try to make sufficient gains on the little capital I do employ, I have become forced by circumstances to trade very frequently, with an average holding period about 10 days.

I don’t like this but you and I never caused this situation all of us are in. What really irks me though is that the Interventionists in Congress and in central banks and so forth who did in fact cause these problems are rubbing their crapola in our faces. They always do.

After the popping of the Internet Bubble of 1999-2000, the Interventionists blamed it on day traders. What unadulterated nonsense. The public was then forced to trade under a different set of rules than Humungous Bank & Broker (HB&B), but of course, who was doing probably 95% of day trading in the market in 1999-2000? Yes, it was HB&B, not the public.

Today there is talk of transaction taxes to cut down the public’s trading activity. Again, what unadulterated nonsense. Moreover, even though zero percent of what is now being called High Frequency Trading (HFT) is done by the public, and 100% by HB&B and their friends, do you think the HFT nomenclature was an accident? Do you think the Interventionists could have discovered or invented a definitive word that would not be confusing to the public, and would put the blame squarely where it belongs? Of course they could, and should. But they are always looking out for their interests, not the public interest.

The Interventionists who use words like day trading and high frequency trading, rather than zeroing in on the real problems, have got one thing in mind and that’s to control us and to let their team enjoy the status quo. They’ve got the money and the power to change, and we’ve got hope and short change. Not very satisfactory!

It’s why I write about capital markets and social equity, which is also why I laugh at the mainstream media’s response (or lack thereof) to my writing.

In any case, we have an unstable credit market, which is shown in the table above, and this is causing us to adapt. However, we can be pushed only so far before we find alternatives. In the meantime we are hoping to see a return to the 10-year average treasury yields.

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