Monday, March 12, 2012

Quiz day at Zero Hedge


Zero Hedge  asks why the Ten Year yields is flat and uncorrelated with the SP 500.  Treasury yields, in normal times, is a good proxy for economic yields in general.  We would expect Treasury rates to rise as stocks signal greater economic yield. But here the green dots, Treasury yield, is flat even though real yields fluctuate.  How can that be?

My answer.  The Treasury is no longer a proxy for the economy, Treasury yields today are mainly about keep DC solvent.  DeLong would say, not so, but Delong assumes all intermediate points on the convergence are available solutions.  We have a sparse solution set. If the Fed trades to correlate Treasury yields with economic yields, then the next stable solution is DC bankruptcy.

How long can the Fed keep this up?  As long as all economies have the same energy shortage, then we can all fake it together.  Unfortunately, look at this chart from Mark Perry:

Which indicates to me that the Swiss and Japan are much better at adapting to energy shortages.  The key factor for economies going forward is energy efficiency, and Obama and his deceptive economic team deliberately ignored energy shortages.   They deliberately implied that adaption to energy shortages was unnecessary, this was a financial shortage, not an energy  shortage.  Now the lie is coming back to haunt them as Obama loses the election.

1 comment:

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