Treasury Trouble Brings Bubble Trouble

The balloon-sized stock market bubble lost a little more of its hot air, and there is not much that can heat it back up again as the bond balloon also loses hot air because the cold reality of inflation all around these markets is cooling rate-cut hopes and pushing them to a farther horizon.

Recently as I wrote about stocks becoming poised to fall, I said the following:

That took the 10YR back above the 4.5% yield level where it just starts competing against stocks. Stocks fell today right as bonds rose. Of course, we’ve seen things in this stock market don’t get really serious until around the 5% level, but the reason for the yield change is serious. Today’s Treasury auction of 10YR bonds met particularly with weak demand.

And we got to see that in action again as the US Treasury suffered another sub-par auction after the two it suffered as the Treasury tries to unload its abundance of paper and is finding fewer interested buyers. Bond dealers were left holding the most since last November when Powell jawboned all of his tightening back out of the markets while holding policy firm. This pressed bond yields higher, with the 10YR rising now above 4.6% and the 2YR just 25 basis points shy of 5.0%.

Unsurprisingly, the market’s delirious rate-cut hopes took a hit:

Stocks took a dip with the Dow tumbling another 400+ points, breaking below its 50-day and 100-day moving averages, with all the major indices ending red, as rising bond yields added competitive pressure on stocks. As stated, as we get closer to that 5% level in Treasury yields, things get critical for stocks. People shorting the market largely got to see the stocks they are shorting jack-hammered down again. Always a plus for the bearish ones. Of course, Nvidia rose. European momentum in stocks is cooling, too.

Higher bond yields also tend to hit gold as holding dollars in the form of bonds starts paying off. This is where I’ve said in past Goldseek Radio Nuggets to expect some down days for gold when yields rise, as they will have to if we are ever to beat inflation, even though the picture longer term is strong for gold, given the news of a failing economy and strong central-bank interest in hoarding gold.

Said Zero Hedge at the start of the day:

US futures are weaker with tech and small caps underperforming after the NDX made a new ATH yesterday on the back of the relentless Nvidia meltup. The weakness has been driven by surge in yields, a result of the latest batch of hawkish Fed remarks [and] two very weak bond auctions….

Stocks aren’t the only thing falling

Speaking of that failing economy, another Dallas Fed Survey came in and looked worse than all of this year’s previous bad ones. “Worst Since The Great Recession,” some said. That’s in this sense:

It’s now had 24 down months, which is the same number of down months it saw during the Great Recession. They are not down as far, but consider this: SUPPOSEDLY WE ARE NOT EVEN IN A RECESSION YET. So, imagine how bad it gets and how many more down months than the Great Recession this survey will see in its general outlook once the recession officially starts!

While Biden tells you the good times are here, so stop complaining, businesses surveyed in the greater Texas region sounded decidedly gloomier. Here are a handful of summary comments:

• Trucking is definitely in recession. Truck freight in both volume and price per mile is way down. Our business won't recover until the industry recovers.

• We are seeing a little slowdown, and inflation doesn't seem to moderate as much as we expected, so we are still seeing increases in input costs and services.

• We see the impact of the high-interest-rate environment starting to impact our customers and customer prospects. Growth is declining, and new business inquiries have waned for key products and services.

• Interest rates and inflation continue to dominate company decisions—our company and our clients and prospects. Costs are high, and budgets are super tight. Therefore, confident decision-making is more challenging for all. Our hiring is on hold while most of our clients continue with layoffs.

• This is the worst we've seen in the real estate market since the Great Recession.

• We have been in a rolling 15-month recession…. Our real estate orders have continued to decrease this year, and that is an indicator that the market is pulling back due to the unknown of where interest rates are headed.

• Interest rates and higher input costs seem to be the key drivers currently.

• Higher prices are frustrating our guests. Customer counts are down for that reason...

• Inflation is getting pretty scary.

Clearly, inflation is winning the battle against businesses and consumers as the Fed’s fight against inflation hits them more aggressively than it is hitting inflation.

As for the impact of this on commercial real estate, where the major trouble for banks lies …

Our ability to raise capital for new projects has been greatly impacted by the current interest rate environment, and the value of existing assets has been significantly impaired.

Currently, all levers are in the wrong direction for our underwriting of existing and operating assets and future developments….

We have tried very hard to hold on to employees throughout the last two years of challenging times, but we are on the brink of having to make major staffing cuts if we are unable to find some relief from some or all of the above metrics….

The carry cost is substantial, and the reality is that we will likely have to sell some to all of our pipeline assets at a discount, reduce staff and wait to start over

How about them Houthis?

We haven’t heard as much about them lately as they feel like old news, but the Houthis are still up to the same old tricks. They pounded one ship twice, and that sent the price of crude back up. So, there appears no likelihood of any reprieve from the rise in energy prices that will be pricing into everything else down the road. Similarly, Israel announced it sees its war in Gaza as something that will continue many more months, meaning the Houthis will keep hard at it.