Rooted in Reason: Nurturing the Seeds of Liberty


Why President Obama Can’t “Afford” a Market Rally Yet by grassroothawaii
May 20, 2010, 11:58 am
Filed under: Uncategorized

By George Berish

The Treasury pays about 3% to borrow the federal debt.  Pre-bailout that cost about 20% of the federal budget.  “Luckily”, the Fannie Mae’s 2008 meltdown frightened an ocean of cheap cash from equities to the Treasury, just as politicians added Trillions more debt.  It drove the government’s borrowing costs down, i.e. the 10-yr. treasury rate fell from 4.0% (6/30/08) to 2.3% (12/31/08), and kept voters from seeing much increase in the 20% — yet.

But, now the President can’t afford a market rally, because it would reverse the Treasury’s cheap cash flow and push the government’s borrowing costs back up.  Don’t forget, rates only half as high as Carter produced would increase the 20% to a politically fatal 30%.

So when the recent Dow rally touched 11,200, and 10-yr. treasury rates touched 4% (4/6/10), political survival required the theft of cash from treasuries by equities stop, which only required disheartened investors.

A powerful President putting his boot on BP’s neck in the middle of a crisis disheartened me into treasuries.  Heck, where’s the profit in equities when the President says “now’s not the time for profits” anyway?

The Dow is 10,400 and falling.  Rates are back to 3.4% and falling. Simple really.

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