New bond king warning “stock is too high”… U.S. Treasury yields rise, gold prices go up

Jeffrey Gundrach, Chief Executive Officer, Double Line Capital

“The stock market valuation (valuation) is extremely high.”

This is the words of Jeffrey Gundrach, the founder of Double Line Capital, who is called the new king of bonds. He appeared on CNBC broadcast on the 11th (local time) and said, “The current record price march is due to the Federal Reserve System (Fed).” It is said that the Fed’s zero interest rate was the reason that the top three indices in New York, including the Dow Index (31.41.13), hit a record high on the 7th. He warned that there is a risk of a plunge in the overvalued stock market.

Underlying these warnings and smearing anxiety lies concerns over inflation and interest rate hikes. In fact, the market is sending out a little bit of danger. The US 10-year Treasury bond yield, which recovered to the 1% level on the 6th, rose to 1.15% on the 11th. In general, long-term government bond rate hikes are interpreted as optimistic signs of an economic recovery. It also reflects the expectations of the upcoming Joe Biden administration’s massive economic stimulus.

The problem is speed. Mohamed L. Allianz, chief economic advisor to Bloomberg, told Bloomberg that “(the recent surge in government bond yields) is not because of economic growth, but because of inflation concerns.” At zero interest rates, there is a lot of money in the market, but if there is more money due to a large-scale stimulus package, inflation pressure increases.

And high inflation can be an order to raise interest rates. As a result, rising interest rates increase the cost of financing for households, businesses, and the government, increasing the debt burden. This is why the market, which was drunk at ultra-low interest rates, has no choice but to react sensitively. These concerns are raising government bond yields.

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Market anxiety is also detected. Atlanta Federal Reserve Bank President Rafael Bostik said, “There is a possibility of a rate hike in the second half of next year.”

Gundrach said, “The consumer price index (CPI), an indicator of inflation, will reach 3% in the case of the US from May to June,” and saw this as a’game changer’ that will overturn the stock market. Julian Emmanuel, the strategic head of US securities firm BTIG’s stocks and derivatives, warned, “It is in the speculative stage that government bond yields exceed 1% and the stock market continues to rise.”

Market indicators were also sensitive. On this day, gold, a safe asset, rose 0.8% to $1850.8 per ounce. In the New York Stock Exchange, the Dow Jones (-0.29%), S&P500 (-0.66%), and Nasdaq (1.25%) were both taking their breath away. The price of bitcoin, which continued to surge, also fell 12% from the previous day to 32,576 dollars.

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The warning sound about the overheated market continues, but the market shows no signs of calming down. Happenings, which show the heated market situation, have also occurred. It is a so-called’signal’ commotion.

Elon Musk, CEO of Tesla, posted a message on Twitter saying “Use Signal” on the 7th. The shares of Signal Advance, a healthcare technology company, were from 60 cents per share on the 7th to $38.7 on the 11th. It surged 5600% in two days of trading. However, the company Musk referred to on Twitter was not “Signal”. It was a signal from WhatsApp’s competitor, a message app company. The wrong stock surged at Musk’s words.

On the other hand, share prices related to SNS such as Twitter (-6.4%) and Facebook (-4%) plunged on this day. This is because of concerns that the Biden government’s regulations could be tightened. Market strategist Jim Reid Deutschebank pointed out, “The Musk tweet incident represents the current investor’s blind stock buying craze. It is an example of how much bubble is currently in the market.”

Reporter Seungho Lee [email protected]