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As I’ve told you in the past, I am obsessed with the 10-year U.S. Treasury … it’s my Magic Metric.
I watch it like a hawk, and you should too if you want to grow and protect your nest egg.
And that’s because this top-of-the-food-chain interest rate can tell you more at a glance than reading multiple financial publications, watching hours of financial TV shows and combing through the endless labyrinth of the internet.
In this article, I’m going to explain what it’s telling us right now … at this very instant.
And more importantly, I’m going to tell you what it’s signaling that you should do with your portfolio to bag big profits between now and the end of the year.
I think you are going to be surprised by my conclusion!
Here’s a chart that shows the yield on the 10-year U.S. Treasury — as well as the level of the S&P 500 — beginning on Aug. 1.
As you can see, both drifted sideways and slightly down for much of August before falling sharply in tandem on Tuesday, Aug. 5.
What’s happening?
Well, as I explained last week, the financial markets typically suffer from a case of the doldrums in August.
In fact, August has been the worst-performing month for the S&P 500 Index since 1992. During this 25-year period (1992 to 2016), this broad measure of stock market performance has suffered an average loss of 0.7% (total return) during August.
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That’s because in August, members of Wall Street’s investment elite typically head out to their vacation homes on Nantucket, in the Hamptons or on the Vineyard so they can enjoy the final weeks of summer before the post-Labor Day race to the end of the year.
But this year, why did 10-year Treasury’s drop pick up steam headed into the Labor Day holiday weekend and ultimately culminate in Tuesday’s steep decline — which sent stocks tumbling too?
If you’ve been watching the news, you know that on Sunday North Korea conducted its sixth nuclear test, successfully detonating a hydrogen bomb.
It was the most powerful bomb Pyongyang has tested to date, creating a 6.3 magnitude tremor. Most notably, however, the regime has claimed that they have finally figured out how to make the device small enough to load into the warhead of an intercontinental ballistic missile (ICBM).
But what’s even more alarming is that calculations performed by David Wright — a physicist and director of the Union of Concerned Scientists — have confirmed that the Kim Jong-un regime may now have ICBM’s with the capability to strike a wide range of U.S. mainland cities.
Although the mass of the payload used in the test is an unknown variable, Wright believes an ICBM fired by the regime could have the range to hit U.S. cities such as Chicago, New York, Boston and Denver.
Washington, D.C., and the White House may be safe from a direct hit for the time being. See the chart below.
U.S. Defense Secretary James Mattis responded to North Korea’s recent actions by telling reporters that any threat to the United States, its allies or its territories “will be met with a massive military response, a response both effective and overwhelming.”
For investors, Sunday’s events inflamed an already tense situation as investors scrambled to hedge their portfolios with the safe-haven U.S. Treasury securities, which sent yields lower.
But consider the information presented in this chart before rushing out and cashing in all your stocks or stashing all your cash in low-yielding Treasuries:
As you can see for yourself, it provides an overview of all nuclear tests carried out globally since 1945.
Indeed, Sunday’s test brings North Korea’s total to six, which is obviously more than India’s three and Pakistan’s two. On the other hand, the United States has conducted 1,032. And combined, Russia and the old U.S.S.R. conducted 715.
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Sure, the recent “flight to quality” and subsequent drop in the yield on the 10-year U.S. Treasury are telling us that North Korea’s aggressive actions have put some fear back into the financial markets after a peaceful run for most of this year.
But in my view, it’s only a temporary pullback, and you should use it to add to your growth stock positions at lower prices if your risk profile allows.
You should refer to last week’s article, where I provided a specific recommendation that should boost your portfolio when geopolitical concerns fade and the 10-year yield climbs back to a more normal range of 2.3% to 2.5%.
Best wishes,
Bill Hall
Bill Hall is the editor of the Safe Money Report. He is a Certified Public Accountant (CPA), Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). Besides his editorial duties with Weiss Research, Bill is the managing director of Plimsoll Mark Capital, a firm that provides financial, tax and investment advice to wealthy families all over the world.
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Bill what’s happening with the commodities market, oil and gold? Is there gonna be a bull market in the stock markets? How’s this gonna effect the LIBOR rate between the different banks along the golden mile? I have been reading with glee yanis varoufakis book on Europe’s deep establishment adults in the room, the sovereign debt crisis in Greece? Whereabouts on the boom, recession, depression, recovery and growth cycle are we at? Is their gonna be a boom, in information technology, is there gonna be a boom in DVD players, where you can pick up a DVD player in your local lidl shop. How’s this gonna the Dow Jones, is the credit rating of the s and p gonna rise again? Are we in for another spectacular boom? A boom even bigger than the last boom. How’s this gonna effect the solow steady state residual, is there gonna be a massive boom in the cobbe Douglas production function, are their gonna be economies of scale and a massive rise in the return to labour and capital. Will there be much foreign direct investment in the economy. Or are we in for a sceleroid economy. Increasing returns to scale. Alpha plus Beta being greater than one in the cobbe Douglas production function. The Boom is back. Their even making films in Hollywood about McEnroe v Borg in the local picture house.
Hey Bill — you seem to convey the 10-year yield is only dropping because of the North Korean nuclear threat. If so, then perhaps you should broaden your perspective to include, among other things, the economic impact of Harvey, Irma and possibly Jose, the drop in the usd, etc.
So what if they’ve “only” run 6 tests – they’ve obviously been successful and it only takes one combined with destructive intention.
I say there is no time to play games. Let’s take him out.
One engineer I talked to recently claims there is little possibility North Korea actually has a hydrogen bomb and even less chance they could accurately hit a major West Coast city. Its a bluff. Take it as fact or ignore it. Personally, let him try and see what happens to him. Double Dare.
Bill;
I have never found a diamond on the road, or a brick of gold. what the stock market looks like to me today is like playing a game of chess against a pro or IBM WATSON. do you think that you would have a good chance of being the winner? I don’t think so. stocks go up (?), well! If they go down, surely no one will buy them. On the other hand, if they go up, the vendor surely will sucker in the buying sucker until out of the blue will drop by 5, 10, 20% or more on any given unexpected day that the stock only sells a 100 or no shares at all. This is carried out automatically by smart computers which are not available to the general public. So the media blames Korea, China or any country such as Russia. ????
Thank you for your reassurance – I was waiting to hear from you, had expected that you would stand by your previous assessment and had bought your reco ASAP! HMB.
Thank you.