July 2013



Does this chart look as if lower yields are in prospect? If not, then two questions: who is selling and what are they buying? If the money from the sales is rotating into stocks, then, stocks can rise into rising yields for a time. How long a time of course is the third question, assuming the answers from the first two.



You thought that your vote counted. That when the politician vying for your vote enunciated his principals, that matched yours, that all was well.


With the “Taper” now a done deal, and interest rates unable to really go any lower, the Bond bull is over. Look at the inflow that this bull market created.


Where will that money flow? At the moment, it’s flowing into stocks. Will that remain the case? Probably not, but for the moment it is the case. Which means, as unattractive as stocks are, for the moment, in the short to medium time frame, you have to hold your nose.


Rather than diversifying only on US stocks, diversify into baskets of stocks worldwide. Catch the next China etc. With the ETF’s it is painless.

I am adding ECH to my existing portfolio.



The jobless nature of the recovery is particularly unsettling. In June, the government’s Household Survey reported that since the start of the year, the number of people with jobs increased by 753,000 – but there are jobs and then there are “jobs.” No fewer than 557,000 of these positions were only part-time. The June survey reported that in June full-time jobs declined by 240,000, while part-time jobs soared 360,000 and have now reached an all-time high of 28,059,000 – three million more part-time positions than when the recession began at the end of 2007.

That’s just for starters. The survey includes part-time workers who want full-time work but can’t get it, as well as those who want to work but have stopped looking. That puts the real unemployment rate for June at 14.3%, up from 13.8% in May.

A collapse in the US median income level has historically coincided with the Fed running a policy of negative real interest rates. The reason why unemployment tends to be lower during periods when capital has a real cost attached was explained in some detail in a piece written in early 2011. This dour relationship has been maintained over the last two years and median income has, as I suspected, continued to fall. Make no mistake, if monetary policy is not substantially changed, then median incomes will continue to fall.


We are watching the Fed employ a trickle-down monetary policy. They hope that if they pump up the banks and stock market, increased wealth will lead to more investment and higher consumption, which will in turn translate into more jobs and higher incomes as the stimulus trickles down the economic ladder. The kindred policy of trickle-down economics was thoroughly trashed by the same people who now support a trickle-down monetary policy and quantitative easing. It is not working.


Earnings are the latest hammer to hit the shorts with. It doesn’t seem to matter that the bar was set only fractionally off of the ground, it doesn’t even matter that they are lowering guidance, all that matters is this.




Next week’s duCati Report is pretty much ready to go. It’ll be in the post shortly.

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