The 1-3-6 Month Treasury Bill Yields are not Signalling the All Clear

by John Galt
January 8, 2012 20:45 ET

The incessant screaming that the markets are fine, the economy is recovering, and don't worry about Europe as we'll bail them out and life will move forward into a new era of unicorns flying across the skies, painting them purple as they poop rainbows and Skittles. Of course what the bubblemedia, economists, and some biased news broadcasters, er, scratch that, all biased newscasters, will not tell the average viewer is that literally hundreds of billions of dollars are tied up in short term government treasuries in the United States, Germany, and Switzerland. In fact, they are warning that all hell could break loose at any moment and worse, that the government and investors willing to purchase these bonds are doing so at a monthly loss.

In other words, they are literally paying these governments to hold their funds because they are so concerned about  a return of capital instead of a return ON capital.

To illustrate this point, here are two charts to highlight the significance of this crisis, the first being from the Federal Reserve Bank of St. Louis FRED website illustrating the daily yields of the 1-3-6 month Treasury bills up to this past week:

(click to enlarge chartS)

If everything is wonderful and these short term yields were up close to the 3 to 5% levels, then the Dow would be well above 15,000. Instead, the market is mired at levels that is has been hovering around off and on for over a decade. To get a better perspective as to how severe these levels really are, here is a chart adjusted for inflation, the CPI-U minus food and energy, also known as the “core” rate of inflation seasonally adjusted:

OUCH!

If one takes a moment to look at that chart, it means that literally billions of dollars are being consistently rolled over, month after month, at a loss to maintain some semblance of survivability or return of the original investment instead of gambling on the stock market casino. This data is worth following and will be tracked monthly as the markets are not signalling the all clear, in fact the persistently negative yields and inflation adjusted real yields is a warning that the extremely wealthy are expecting worse events in the world economy's future.

Plan accordingly or believe the nonsense from the idiot box, the data does not lie.