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

Comments (18)
No. 1-14

What's the duration risk of bonds here? Is anyone forecasting a 300 bps rise in the 10 year? That said stock valuations are high. Lots of anecdotal evidence to suggest GDP growth will decrease and earnings too.


Interesting comment (and mindset) from the guy who is responsible for issuing over $2 trillion in treasury debt next year (new issuance plus maturities).

Hey Steve, shouldn't you be talkin' up your book?



You are confused by the way Mnuchin refers to the exchange rate between bonds and stocks. Yes, all bonds and stocks are held by someone at any moment in time. But that is not the point. The rate of exchange between the perceived future cash flows created from bonds versus those from equities is what cause massive swings in the value of one investment compared to the other at times.

That is why in the crash of '87, as I remember, the total dollar value of stocks and bonds remained very close to the same at the end of the day. However, The total valuation between the two investments changed dramatically.

In fact, rate of exchange is why you believe gold is a good investment. You believe the rate of exchange between stocks and gold will change in the near future. You are not saying all gold and stocks won't be held by someone.

Thanks for your blog posts. I read them nearly everyday.



It's only impossible if the value of stocks and bonds never change. If the value of stocks go up and the value of bonds go down then that's a rebalancing of wealth from bonds to stocks.


Mnuchin is no economist. He was a bond salesman and a banker which at goldman is just a fancy term for rain maker and salesman again