If Yield Goes Significantly Higher The Market Will Freak Out
Michael T. Snyder | Jun 23, 2013 02:02AM ET
If yields on U.S. Treasury bonds keep rising, things are going to get very messy. As I write this, the yield on 10 year U.S. Treasures has risen to 2.51 percent. If that keeps going up, it is going to be like a mile wide lawnmower blade devastating everything in its path. Ben Bernanke's super low interest rate policies have systematically pushed investors into stocks and real estate over the past several years because there were few other places where they could get decent returns. As this trade unwinds (and it will likely not be in an orderly fashion), we are going to see unprecedented carnage. Stocks, ETFs, home prices and municipal bonds will all be devastated. And of course that will only be the beginning. What we are ultimately looking at is a sell off very similar to 2008, only this time we will have to deal with rising interest rates at the same time. The conditions for a "perfect storm" are rapidly developing, and if something is not done we could eventually have a credit crunch unlike anything that we have ever seen before in modern times.
At the moment, perhaps the most important number in the financial world is the yield on 10 year U.S. Treasuries. A lot of investors are really concerned about how rapidly it has been rising. For example, Patrick Adams, a portfolio manager at PVG Asset Management, was quoted in about China so much. China has a tremendous amount of leverage over the global financial system. If China starts selling bonds at about the same time that the Fed stops buying bonds we could see a shift of unprecedented proportions.
Sadly, most Americans have absolutely no idea how vulnerable the financial system is.
Most Americans have absolutely no idea that our system of finance is a house of cards built on a foundation of risk, debt and leverage.
Most Americans have complete and total faith that our leaders know what they are doing and are fully capable of keeping our financial system from collapsing.
In the end, most Americans are going to be bitterly, bitterly disappointed.
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