Treasury Secretary Mnuchin is Totally Clueless About How Markets Function

Treasury Secretary Mnuchin says investors will now move from bonds into stocks. Excuse me, but's that's impossible!

If you want to know just how clueless our Treasury secretary is then please consider Treasury Chief Calls Market Reaction to Fed 'Overblown'.

Steven Mnuchin, in an interview with Fox Business Network, said he believes U.S. equities are a “tremendous value,” and that investors would now move from bonds into stocks.

“The market reaction is completely overblown,” he said. “I think you’re going see rebalancing out of bonds (and) into equities at these levels.

Opinions vs. Errors

I strongly disagree with Mnuchin on valuations. But he is entitled to his own opinion, no matter how silly it seems.

His opinion is not the problem. His comments prove he is clueless how markets even work.

Mathematical Impossibility

It is mathematically impossible for investors, in aggregate, to "rebalance out of bonds into equities."

The explanation is easy. For every buyer of a stock or bond there is a seller. For every seller there is a buyer.

Someone much hold every stock or bond issued, 100% of the time.

Individual investors may take action, but rebalancing cannot and will not occur in aggregate because it is mathematically impossible.


Don't expect rebalancing (because it's impossible). Instead, expect repricing.

Equities are not cheap. Expect them to get hammered and junk bonds right along with them.

Buy gold, that's what's cheap (obviously my opinion).

Mike "Mish" Shedlock

No. 1-14

Mish, it seems you are trying to find a definition of what "investors move from asset A to asset B" means so that you could make Mnuchin appear as illiterate.

There is:

  1. hard asset pie chart denominated in number of securities
  2. hard asset pie chart denominated in mark to market dollars
  3. long asset right pie chart denominated in number of securities
  4. long asset right pie chart denominated in mark to market dollars

You are right that #1 looks the same when investors move from bonds to stocks, because for each buyer there is a seller.

However, when investors move from bonds to stocks then pie chart #2, #3 and #4 will have different allocations for bonds and stocks.

If you are wondering what is the difference between "hard asset" and "long asset", then think of short sellers creating extra "long position" in process of shorting while not creating a new "hard asset".

P.S. What I said above does not have anything to do with whether I agree or disagree with Mnuchin's hypothesis.


Buy gold, that's what's cheap (obviously my opinion).

Yet another gold pump.


Even if people rotate out of bonds into stocks then it will cause a bond crisis which will force investors to sell equities to cover losses in bonds. I believe that cycle has started now.


Mnuchin is a trader, an establishment trader, but he is still a trader, which means he knows more about capital flows than all of the bureaucrats and ivory tower theoreticians put together. He gave you a freebee, and you scoff. This reality has been pointed out to you for free for over a year, and you still never answer the basic question – when the bond bubble pops, where else can the big money go? Sure, gold will get it’s share, but that is just for retail. There is only one market deep and broad enough to absorb the flows. Your conventional thinking is getting in your way. What happens when assets with real collateral serve as the safe haven? Govt’s default all the time.


I'll be more surprised by an economist with a clue.