The Path to Infinite Leverage (Musical Tribute)

The following chart shows the inverse of the 10-year treasury yield. Why the inverse? At 0%, one could borrow an infinite amount of money and still pay the interest payments in full (without even breaking a sweat). When seen this way, 0% isn't a floor. It's infinity!<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZlS_v14yyJeJ4BHQosbdGhKJo7Sykl0BTeQjqlZF8hTpa4DQGkSpvSPxy1vCHhtTaL77c0TuWPOL4ElVRf78eUhG-7cnRj78SpPsaYwbTLXJXWqoloIyTCwmjXbP-gZRHYKgv3syuZ8g/s1600/The+Path+to+Infinite+Leverage.jpg" imageanchor="1"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZlS_v14yyJeJ4BHQosbdGhKJo7Sykl0BTeQjqlZF8hTpa4DQGkSpvSPxy1vCHhtTaL77c0TuWPOL4ElVRf78eUhG-7cnRj78SpPsaYwbTLXJXWqoloIyTCwmjXbP-gZRHYKgv3syuZ8g/s320/The+Path+to+Infinite+Leverage.jpg" /></a><br /><span style="font-size: x-small;">Click to enlarge.</span><br /><br />Note that there has been a trend change. As seen in the difference between the red and blue exponential trend channels, the inverse is growing even faster than it once was. What does this mean? Rising interest rate environment my @$$! That's what. Just an opinion of course. Your opinion can and probably does vary.<br /><br />But before you disagree, consider this. Our modern financially innovative over-leveraged society *requires* an exponentially increasing amount of leverage, lest it seize up (again). If not, please provide evidence to the contrary. I'm all ears. Further, an economy seizing up tends to be disinflationary (compared to what it was before it began to seize).<br /><br />If I am right, then we better start learning Japanese economics, because that's where we are headed apparently. Welcome to the era of <a href="http://research.stlouisfed.org/fred2/graph/?g=mQJ">perma-ZIRP</a>. And when I say perma-ZIRP, I do not mean over the next 10,000 years. It could easily be a LOT longer than most people think though. For savers looking for <a href="http://research.stlouisfed.org/fred2/graph/?g=mQM">a relatively safe return</a>, I expect the beatings to continue until morale improves. It's one reason I have not been scared about locking in long-term interest rates whenever <a href="http://news-these-days.blogspot.com/2013/08/19-year-tips-trading-update.html">the opportunity presented itself</a>.<br /><br /><iframe allowfullscreen="" frameborder="0" height="236" src="//www.youtube.com/embed/r00ikilDxW4" width="420"></iframe><br /><div style="color: #666666;"><br /></div><div style="color: #666666;"><i>When you're at the end of the road<br />And you've lost all sense of control<br />And your thoughts have taken their toll<br />When your mind breaks the spirit of your soul<br /><br />Your faith walks on broken glass<br />And the hangover doesn't pass<br />Nothing's ever built to last<br />You're in ruins</i></div><br />This is not investment advice. It's just the opinion of a perma-bear. That said, who honestly believes that the <a href="http://www.forbes.com/sites/afontevecchia/2013/09/26/jcpenneys-contradictions-retailer-announces-equity-offer-hours-after-ceo-ullman-denies-need-to-raise-capital/">hangover is passing</a>? We're not just drinking a <a href="http://en.wikipedia.org/wiki/Hair_of_the_dog">hair of the dog</a> that bit us. We're attempting to drink the whole frickin' dog again. Good luck on that one long-term!<br /><br /><b>Source Data:</b><br /><a href="http://research.stlouisfed.org/fred2/graph/?g=mQG">St. Louis Fed: Custom Chart</a>

The Path to Infinite Leverage (Musical Tribute)

The following chart shows the inverse of the 10-year treasury yield. Why the inverse? At 0%, one could borrow an infinite amount of money an...

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