Since its dark days of March 2009, Wall Street ably assisted by its central bank benefactor has soared to levels beyond anything we could ever have imagined.

Nasdaq has clocked up a 16-fold gain and the S&P 500 a more modest seven-fold increase. Contrary to what people might think, compound returns of this magnitude ARE NOT normal.

However, the longer something goes on, the more ingrained the belief becomes in its permanency.

This headline from the 4 July 2023 edition of The Wall Street Journal captures the current mood of eternal optimismone-fifth of investors age 85 or older have gone all-in on the marketWOW

I recall Buffett saying something like, when others are greedy, you should be scared.

Are this cohort of bullish seniors aware of just how overvalued the US market is?

Instead of being greedy, shouldnt they be scared?

As of 30 June 2023, 16 valuation metrics four of which have data points dating back to 1925/26 are ALL registering readings ofModerately to Extremely Overvalued.

Nothing is cheap out there.

So, we felt sorry for the owner of a huge mega-yacht that came into the harbour yesterday. Sleek and longwith its own starched-white crew and chefworth maybe US$50$100 million. The rule of thumb is that annual operating expenses come to about 10% of the purchase price.

How proud the owner must have been! His friends and family aboardall impressed by his floating palace

But then, mooring in Taormina bay

the poor owner must have felt like he needed a second job; the yacht was dwarfed by other super-super yachts already in the harbour.

Welcome to the world of the richin Taormina, Sicily.

Rates rocket

We are in Sicily attending a wedding. Despite all the advances in technology AI, cryptos, and luggage with wheels

and all the advances in public policy the Patriot Act, the war in Ukraine, removing statues, and almost 13 years of negative real interest rates

and progress in society itself using they to describe a single person, taking pride in things that used to be unmentionable and unpardonable, and recognising that we are all hopeless racists

people still hitch themselves, one to another, like plow-horses.

And sometimes they want to do it in exotic locationswhich is why we are here.

The wedding went smoothly and elegantly. And then we spent the weekend exploring the countrysideincluding the towns of Castiglione di Sicilia and Troina, where we heard they were giving away houses.

More about thattomorrow.

Today, let us look at the most important thing to happen in the financial markets.

Benzinga reports, 10-Year Treasury Yields Rise Above Inflation for the First Time in Three Years:     

In a significant market development, the yield on the 10-year US Treasury note surpassed the rate of inflation for the first time in more than three years. With the current yield at 4.04% and inflation recorded at 4% year-on-year in May 2023, this milestone signals a crucial market shift.

when bond yields surge above inflation, the dynamics change dramatically. 

And heres the Reuters report, US two-year Treasury yield surges to 16-year high after employment data:

The two-year US Treasury note yield rose to its highest level since June 2007 on Thursday after news that private payrolls jumped in June, showing that the labour market remains surprisingly strong despite risks of recession from higher interest rates.

Piping hot

What sent interest rates shooting up was news, last week, which told us that the labour market is piping hot. We dont believe it really is; most of the new jobs are actually second jobs taken by people who are desperate to keep up with rising...