THE BOND BOAT

Want more proof too many are lining up on the wrong side of the interest rate boat?

Today's WSJ: "Rate-Wary Banks Build Bond Shelter."  According to the story, U. S. banks have increased their Treasury investments, joining the so-called in-crowd in their concern over deflation and uncertainty especially about interest rates.

Here's a quote: "In the first quarter, the collective holdings of Treasuries by U.S. banks grew 23%--the biggest shift since the financial crisis and the fifth-biggest on record......As a result banks now hold more Treasuries than they have since 1997, even after adjusting for inflation."

Some cynics might view this as payback to their friends at the Fed, helping to keep a lid on inflation fears and allowing the government to continue financing it's debt on the cheap. There's a spread profit here if one cares to look: Borrowing from depositors and customers for practically zero and booking over 2% income on the bonds.

Now to push the cynical aspect a bit farther, we're not for a moment suggesting that the Fed would ever let the banks know just before they hike rates so the banks can book a profit on those bonds. We're saying you can bet your first born on it.

Banks are feeling the pinch of stronger regulations, declining mortgage business and a drop in securities trading, to list a few of the industry's claimed woes. The solution, according to many bank executives, lower interest rates to ramp up volatility and bring back the mortgage business.

In other words, give them a playing field they like and rally the prices on all those bonds so they can dump them at a profit otherwise we'll have to cut more costs. And we all know what that means, cutting what hardly exists in the financial world today or, for that matter, in corporate America, service.

The bond boat is getting crowded. Just make sure you're wearing a life preserver. What didn't happen in 2014 could be lurking just around the corner in early 2015.