CNBC and the Truth About “Super Yields”

Late last year we began working with the awesome folks over at Paradigm Press. Over there we have helped launch another free daily newsletter - Truth & Trends. If you want to see even more of my (Enrique) writing for FREE, check out Truth & Trends.

Today we are sharing one of our articles from last week where we shared some potential “surprises” for 2025.

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Here’s a TRUTH for you: the media is NOT here to make you money. In fact, their motivations are exactly opposed to what will make you a better investor.

They are looking to get you to click on their story. That’s it.

As human beings, we are much more likely to click on something negative than positive. Ipso facto — the media’s entire focus is on generating negative narratives.

The other problem with the media and the financial press is they have absolutely no idea whatsoever how the markets REALLY work.

Personally, I have been an avid watcher of CNBC for decades. Absolutely love it!

It has also made me a ton of money over the years — they aim for eyeballs. I aim for profits. That, however, is because I know how to use it. Listen to the music and not the narratives.

That fact is that almost all of the “narratives” that are out there at any given time to explain what is happening in the markets are complete BS.

They have no real grounding in how the markets really work.

They can also be very dangerous if your goal is to make money.

Today, we are going to talk about the current dominant “narrative” in the stock market — interest rates and the U.S. dollar.

The stock market has been grinding through a nasty correction over the last couple of months.

The overall indices are not down a lot and the damage in individual stocks is not terrible, but it is everywhere!

Looking at the advance/decline lines it is clear that almost no one has made money for weeks now.

If you listen to the media and the “smart” money, they will tell you this is because interest rates have skyrocketed since the Federal Reserve started cutting interest rates.

Higher interest rates are a headwind for the stock market many times.

The “smart” money will go on to say that these higher interest rates and “super yields” are the result of expectations of higher inflation.

They also are the result of concerns about the level of national debt and the “bond vigilantes” are punishing bonds as a result.

“It’s All Wrong.” Here’s Why…

Every single factor above is a very real phenomenon, but I don’t think almost any of them are actually relevant over the past few months. It is all wrong.

Let’s start with bonds. Here is a chart of the yield of the U.S. government 10-year bond. On this chart, I have also included my favorite short-term technical indicator, the relative strength index (or RSI).

On the chart, we have circled the points at which yields have become overbought or oversold on an RSI basis.

Remember that the RSI is a measure of investor enthusiasm. An RSI above 70 says that they are exuberant (likely overly so) and an RSI below 30 says they are despondent (likely overly so).

As much as everyone talks about inflation and the national debt, the reality is that the 10-year has traded in a range between 3.5% and 5% for the last couple of years. This range dates back three years to 2022.

Here is a chart showing the yield on the 10-year over the last five years…

I think that we are in a balanced environment for yields. They are higher than they were, but still not high. High would be the high single digits or double digits we saw in the early 1980s.

These absolute levels (3.5% to 5%) don’t really matter that much to the real economy.

In terms of the recent move in rates — which many say have “skyrocketed” — I don’t think a move from 3.6% to 4.8% really matters. It simply isn’t enough to have an impact.

Here is a chart showing the recent move in yields…

Rates are also just back to where they were in the spring of 2024 and the fall of 2023. The stock market and economy seemed to do pretty well after those periods.

The REAL reason rates are moving is that they were oversold.

On the first chart, we have put red circles where the RSI was above 70 and a green circle the one time where the RSI was below 30.

Look at the chart and you can see these times exactly line up with peaks (or troughs) in yields.

Yields — in this current balanced environment — are trying like any other financial asset in the short term. They are trading on human psychology.

Taking a step back and turning out the narrative noise will allow you to understand this and better understand where yields are going to trade.

The charts above prove it. Our view is that bond yields are unlikely to go up much from here and — in fact — are likely to trade lower.

This can help reignite the fire underneath the current bull market and bring us back toward the highs.