Why the Divergence between Stocks and U.S. Treasuries?

ProShares Short 20+ Year U.S. Treasury (NYSE-TBF)
ProsharesOn your left is a 10-day chart of the ProShares Short 20+ Year U.S. Treasury chart through May1, 2015. As you can see, ETF (NYSE: TBF) has been rising and quite dramatically. Over the past 10 days it has risen from around the $23.85 area to $25.12 or 5.05%. Meantime, the U.S. economy appears headed into a recession, which begs the question, why should U.S. Treasury rates be rising if the U.S. economy is heading south? I’ll pass along some thoughts on that in a minute but more troubling to me is another question. Why are U.S. Treasury rates rising (declining in price) at the same time the U.S. equity markets are making no progress and as such not sucking money out of Treasuries over the past 10-days as you can see from S&P ETF immediately below?

SPDROf course with the U.S. economy heading back into the tank even using the government’s own fudged numbers, a decline in stocks, discounting declining earnings into the future, makes sense. But then there would normally also be a “flight to safety” out of stocks into those ultra “safe” U.S. Treasuries.

So what’s going on here? Why is money leaving stocks and Treasuries at the same time? Well for starters, it’s too early to draw any conclusions on just two weeks of data. And as noted by Michael Oliver, who is closely tracking the 10-Year Treasury (which is not terribly different from the 20- to 30-year notes), longer dated U.S. Treasuries are trading within normal bounds. Last Monday he noted that there is no reason for concern for the 10-year note unless it falls below 127.25. Well what do you know! At the end of this week it closed exactly at 127.25. I will be looking forward to Michael’s weekly update for a comment on this market. If the 10-year note falls markedly below 127.25, I may enter TBF as part of my Model Portfolio.

Here is my theory about what may be causing money to leave both U.S. Treasuries and Equities. The ability to keep money flowing between stocks and U.S. Treasuries is dependent on THE BIG LIE, namely, that the PhD standard is better than the gold standard. Thanks to a massive dose of propaganda and indoctrination over many decades, the ability of Americans to recognize Pinocchio’s protruding nose, even as it becomes ever-more obvious, has been severely limited. However, there will come a time when even the completely blind economists out of Harvard, Princeton, and Yale will finally realize that Keynesian (Communist light) and Monetarist (fascist) economics are fraudulent theories. One wonders how many more months will go by when the Fed chairperson promises to “normalize” interest rates only to find that the economy is forever getting weaker. I’m guessing that even those poor devils from our most prestigious universities will one day wake up to learn the truth that the Fed can NEVER allow interest rates to rise again without triggering a stock market crash that will make the 2008-09 episode look like child’s play. Whether that truism is just now starting to be revealed by the divergence between stocks and U.S. Treasuries remains to be seen. It has been incredibly amazing to see how long supposedly well educated people can follow their lemming PhD’s from Harvard, Princeton, and Yale into our sea of economic trouble. You have to hand it to the powers behind the throne. They have done a marvelous job of mind control an propaganda. But systems have limits and how can any independent thinker not see that the U.S. and global economies are very near the point of systemic breakdown?

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.