Rising Bond Yields May End the Biggest Show on Earth


Money makes the world go round. Which is why watching money is so entertaining. It is like watching the Three Stooges – it’s one absurd pratfall after another.

While Wall Street redistributes wealth from the novices to the pros – from “weak hands” to strong ones, as the pros themselves put it – corporate America does its own share of redistribution, taking it from the soft hands of retail investors and pensioners and putting it into the calloused paws of elite insiders.

“CEO Compensation Skyrockets,” says an AP headline. Half of America’s top chief executives, those at S&P 500 firms, make more than $8.3 million per year, adds the article.

Of course, we’re perfectly happy for CEOs and Wall Street hustlers to make as much as they want. It’s all part of the public spectacle, as far as we’re concerned.

But we remind readers that the shows change. Sometimes, it’s a happy farce that viewers want to tune in to. Other times, it is a sour tragedy. Sometimes, investors are perfectly happy to pay their hired hands millions; other times, they get stingy and hold back every cent in case they need it. Sometimes too, they rush to buy whatever Wall Street offers them. Other times, the poor stockbrokers wait by silent phones.

The difference lies in the quantity of money. When credit expands, people get a little free and easy with it. They spend and lend recklessly, sure that there will always be more of it. Inevitably, they get too much of a good thing. Soon, people can’t pay their bills… lenders get scared… consumers cut back… investors panic. Then, the whole spectacle changes. No more light-hearted tap-dancing. Instead, viewers want to see the proud protagonists punished. They want to see the powerful humbled and the rich roasted.

How will you know when the playbill changes? Watch the bond market. Bond yields have been rising. This makes it tougher for the housing market to recover and pokes a hole in the huge credit bubble. So far, it is just a tiny puncture. But the hissing sound is probably enough to discourage the Fed from raising rates. And if it grows louder, rising bond yields could signal the end of the biggest show on earth.

Bill Bonner
The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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