One of the arguments people like Wharton Finance professor Jeremy Seigel, a perennial bull who if he gets any more bullish given his long record, could replace the bull statue just outside the New York Stock Exchange, is this statement given today on CNBC.
So, the 10-year goes from 2½ to 3—and maybe even 3½—that's still extraordinarily low from any historical (perspective). And that's why, again, stocks have that wind of the interest rates going with them no matter when the Fed starts tightening."
It should be noted here how often bulls like Seigel like to recite historical norms when they buttress their position. Now we're neither bull nor bear.The market is what it is until it decides to be something different.
Yet unless we misconstrued Fed Chair Yellen's recent mincing of words act at Jackson Hole, she noted that the labor market was indeed different this time. Different from what? Historical standards.
Assuming she's correct, a position many bulls take, one could postulate why would the labor market be different from the interest rate market? And why would historical standards apply here but not there?
Lowering interest rates is designed to pump up consumption. Pumping up consumption is designed to pump up the economy. And pumping up the economy is supposed to create jobs. Yellen's point, as we understand it, is the jobs have not readily shown up because it's different this time.
So despite Seigel's claim to the contrary, going from 2.5% to 3.5% yield on the 10-year Treasury, irrespective of coming off historical lows, might indeed be different this time. And an S&P 500 with earnings at $120 at 2,000 trading at 16.5 earnings might not turn out to be so cheap after all.
t. man hatter
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