’s reaffirms that it’s on the bandwagon

From a article making the case that there is no bubble, which itself is actually a sign that you might be in a bubble: “The P/E for the S&P 500 Index is above historic norms, but not greatly so considering the strong earnings momentum and historically low interest rates.”

As much as a surprise as this might be to some people, the historically low interest rates are most likely going to change soon, and possibly significantly. Of course, there is that massive short position in the bond market, which is begging to get squeezed if the right catalyst develops, but that’s another story. For the past 10 years the game for many corporations and consumers has been to…

…minimize the interest rates today by going further and further down the yield curve. Unsophisticated CFOs and oodles of consumers simply want the lowest interest rate any way they can get it and damn the torpedoes! Feels great when you can trump your neighbor in a friendly game of “who’s got the lower interest rate.” And not even the Jones can’t beat you’re your secret weapon, the interest-only LIBOR ARM with weekly rate changes! It’s a fun game in a declining rate environment, which is the only thing some people have seen in their lifetimes (at least that portion of their lifetimes when they have been aware of interest rates). Unfortunately, that game cannot last for ever. On January 26th, the Fed told anyone who cared to listen that the ARM party is going to end soon (6-12 months). The message was: You people better start positioning for the new game, which isn’t going to be so fun to play if you’re long the short-end of the yield curve. We’ll call the this new game, “Honey, who doubled our mortgage payment?” Or, “How’d we get upside down on our no-money-down mortgage, I thought property values only went up.” If you’re a 20-something bond trader, then the refrain goes, “So that’s what happens when everybody unwinds the carry trade at the same time.” Right after your bond buddy says that, he’s going to hand you his resume!