Bond Rate Rally (??) Crushes Equities

[lektrode]

ya know....
i may not be 'gods gift' to financial analysis, but - thanks to itulip - at least eye can see just how f__k'dup the news media is -
i mean... WHO WRITES THESE HEADLINES?

Bond Rate Rally Crushes Equities

If the Fed didn't change its approach to stimulus, and it didn't, why are stocks getting taken to the woodshed? In the attached clip Jeff Kilburg, founder of KKM Financial and CNBC contributor, and Yahoo! Finance senior columnist Mike Santoli try to hash it out in real time in the wake of yesterday's post-Bernanke slide.


Speaking from the Chicago Mercantile Exchange, Kilburg immediately points to the bizarre, or at least unprecedented notion of the Federal Reserve speculating on government paper. "They have the ability to reduce or increase purchases," Kilburg notes.

"Now all of the sudden we have the Fed day-trading the economy. That's scary."

uh huh - whats even scarier is when the fin media puts up headlines that suggest the yield on the 10yr note bouncing up 25% in a few daze is somehow a 'rally' (as in: good news)

only question now is: is this the kickoff of the long expected (by some of us here) blowout/selloff ?

discuss please....

[charliebrown]

Re: Bond Rate Rally (??) Crushes Equities

I'm not the smart guy around here to talk about this, but bonds do compete with stocks for investment purposes.
Before buying stocks, I look at interest rates, last year when 10yr T's were 1.5% and stocks were 1400, the choice of bonds vs. stocks
was easier than today with stocks 1600 and bonds 2.4%

Some things I don't understand are ...
The fed is taking a major book loss right now. What is the duration of their bond holdings? Are they insolvent? (Assets < Liabilities). I know if this
occurs the fed stops turning over interet payments on their portfolio to the treasury. When will that show up in the deficit?? In the olden days with
gold backing I assume there would be a run on the bank, where there are are more dollars in circulation than gold in the vault. I'm not so sure what
happens when the fed is stuffed with paper that only returns "other" dollars if held or sold.

Why are rates spiking up?? Is it just the threatened taper? I see the foreign holdings are decreasing, are they trying to tiptoe out of the us bond market.
Is it china in crisis not able to buy any more T's for a while??? Do people realize that it is QE forever until destruction??
It seems like Dr. B has lost control of the longer end of the yield curve.

What does this do to banks? Their portfolio of bonds is getting crushed, on the other hand since the short end is near zero, the spreads are growing.
Is this what gets them to start making lots of loans again? A big spread?? I have a 9% equity position. I would like to increase its size. A few more
percentage points of pain an I will start buying some. (Only high quality stocks)

Because of the decrease in price/increase in yield, I am turning some of my 0% interest cash into some short term bonds 1-3 yr maturity only.
And I consider this a speculative position. If rates should come back down I will lighten up on it.