由数字

As bond prices rose and yields fell, this significantly affected the equities markets as people and institutions alike scrambled to try to get better returns as the yields shifted downward into a \"Borrower\'s Paradise.\"

Many large institutional accounts, such as insurance companies and pension funds, are going through massive re-allocations of assets programs as they try to deal with lowered bond returns.

The equity markets, in my view, are now quite dependent upon the Fed\'s decisions to lower rates or not and increase its balance sheet or not.

Forget the touts and spins. Forget all of the hypes tossed about by someone that has an axe to grind. Forget the myriad of people in the press that are engaged in trying to get you to do something for their own benefit. Let's drill down and look at the facts.

The interesting thing to me about this data is that the numbers are not standalone entities. I would contend that as bond prices rose and yields fell, that this significantly affected the equities markets as people and institutions alike scrambled to try to get better returns as the yields shifted downward into a "Borrower's Paradise."

In fact, I can report with certainty that many large institutional accounts, such as insurance companies and pension funds, are going through massive re-allocations of assets programs as they try to deal with lowered bond returns. They are loading up on private placements, private equity, Real Estate and anything that can provide returns that may be higher than the public bond markets. They have also shifted more money into the stock markets, as lower yields are a boon for anything and everything that is affected by lowered borrowing costs.

I have predicted this outcome for some time now, but I have also warned about the longer-term implications. Lower borrowing costs play out in a two-step fashion, in my estimation. In the first instance, it helps all risk assets, but in the second instance, where lower borrowing rates no longer move the needle, risk assets will decline, as the lower rates no longer help. We are in the middle of the quagmire now, in my view, and so, I am warning that our lower yields are playing themselves out as forecasted. Keep your eye on the ball here, as it may save you a lot of money.

Now let's look at exactly the same data for the last three months:

What the data tells me is that everything is slowing down and contracting. The continuing focus is on China, Brexit and the impeachment battle, and they are all certainly driving forces. I also include the nations of the European Union, giving directions to the European Central Bank and driving $17 trillion worth of bonds into negative yields. A first in history, as the nations of the EU cannot afford their budgets except by creating money from "Pixie Dust" and then buying their sovereign and corporate debt with it and driving yields passed the Zero rate line.

Remember that the amount of debt is only one factor, and that the interest rate paid on the debt is also part of the calculation. When yields are zero, or less than zero, it is far easier to afford what you want, as it costs nothing, or less than nothing, to buy it. This is why I keep saying that we are in a "Borrower's Paradise."

All of this has been a boon for risk assets, but the bloom is beginning to wear thin, in my estimation. A lot of what happens for the rest of the year, I point out, will depend upon the Fed and what decisions get made. The equity markets, in my view, are now quite dependent upon the Fed's decisions to lower rates or not and increase its balance sheet or not, and I think you have to pay extremely close attention to what it does now.

"Preservation of Capital" is always the first ten of Grant's Rules. This has been a great year for appreciation in all of the markets. I think that lower interest rates have been a major driving force for all of this. The 10-year Treasury is the benchmark. Its average yield, for the past 10 years, is 3.99%. Its low yield was 1.36%, recorded on July 8, 2016. Today, we are just 40 basis points off its lowest yield of the decade. Yields may go back down, if mandated by the Fed, but they may not now, and so I issue my note of caution.

Editor's Note:

The summary bullets for this article were chosen by Seeking Alpha editors.