|
Since this weekend I have watched so many people blaming Congress and The Senate for the state of affairs here in the States. (Yes I am guilty as charged.) So I must ask where did these people come from?
Over the last 80 years, we have allowed our government to take a bigger and bigger role in our life. There was a time when we had a very laissez faire approach to our daily lives. We did not want the government telling us what trees can grow in our neighborhood or what type of toilette we have in our home, and what type of medical we should receive.
Don't get me wrong there are things that only our government should do as defined originally by our constitution. (It's a good read I highly recommend just for the fun of seeing how its been perverted over the last 200 years.) The government should establish a militia, and it should create a fiat currency, and it should impose taxes and tariffs as deemed necessary.
Unfortunately we (yes you and I) have allowed our government to grow so big, that it now controls our economy. By definition, that is socialism. When that sizeable government is not functioning properly, because it is such a large part of our economy, we all suffer.
Example: we are currently waiting to see how much of Obamacare will be deemed constitutional. (First of all how did a Congress and Senate sworn to uphold the constitution pass a bill that has several very distinct areas already declared unconstitutional?
Oh yeah, that's right the 2,770 page bill was delivered 39 hour before the vote. To quote Senator Nancy Pelosi, "But we have to pass the bill so that you can find out what is in it, away from the fog of the controversy." In her defense, it is understood her and her staff were briefed about the highlights of the bill before the vote and read it in its entirety weeks AFTER she voted on it. I would assume there are those in parliament who did not even do that.)
Now we have thousands of corporations with trillions of dollars of cash on the sidelines, and they are reluctant to hire because of two reasons. They do not know how much it will cost to hire say 500 employees because of the new health care regulations. They also do not want to hire because they are seeing lackluster consumer demand. (Consumer demand is driven by confidence and employment.)
So we have incredible government influence on our economy and that government seems to be more and more ineffective.
Today's circus, with JPM Chairman Dimon (who has donated thousands of dollars to many of the committee members he had to answer to this morning) having to account to a body of people who have not submitted an agreeable budget in two years and who have the largest deficit in US history, is liken to having a young teenage girl recently caught using a razor to cut her initials on the back of her hand answer to a panel headed by Charles Manson, Jeffery Dalmer, Son of Same, Lizzie Borden, Jack The Ripper, Ted Bundy, to name a few.
So the bigger government we ask for via the people we elect, the worse we make the system.
Hide And Seek
The game started today at about 3:00PM EST. The market was up about 10 points on the DOW and 2 points of the S&P 500. Then someone must have remembered that the Greek Election is a day or so away. You do not want to be long in a sizeable portfolio entering a volatile weekend. So you must seek some safe harbor and hide your money. In comes the 10 year Treasury.
During the back half od lunch I have been watching the yield on the 10 year creep down from 1.67 to 1.59%.
A little remedial tune up for those that want or need it. The 10 Year US Treasury Bond is considered by many around the world to be the safest harbor of stashing money there is. Now stashing money is a bit of a bad description. You are actually loaning money to the US Federal government and you get a determined interest rate for 10 years.
A simple example. The US Government is selling a $100.00 2% bond (Loan) to you at auction. If everyone is worried about the market and other investments and was a "safe" place to park money, you might be willing to "bid" for that loan at auction and you might end up paying $105.00 for that safety of that 2% note. Your yield to maturity (all the interest you would get back over the life on the bond.) becomes 1.49%, not the 2.00% face value of the note.
You will hear the terms "risk on" and "risk off". Risk off indicates that people are willing to take more risk so they would be inclined to sell off their bonds. If the price of that 2% 10 Year Treasure at auction goes for say $95.00, your yield to maturity becomes 2.573%. Hope that helps explain the importance of the 10 year Treasury.
That is important to the overall market because, in a risk off scenario, they leave safety like bonds and invest in other asset classes such as stocks or commodities.
So we have this somewhat volatile weekend ahead so the casino managers are plowing out of equities and into safe harbors. Seeking Yield and hiding their money. The result, the market was down 77 points on the DOW and 9 points on the S&P.
Salve Lucrum | 
