Wall Street continues to dance on the edge of a hissing volcano. Rising interest rates in the U.S. and around the world pose a serious risk to the stock market. So far nobody seems to have noticed.

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The question facing investors handling their own retirement funds is an ominous one: How long can this go on? Especially in the face of gigantic federal deficits and a stock market that has almost never been this expensive.

While the headlines out of Jackson Hole were about Federal Reserve Chair Jerome Powell’s apparent pivot toward lower short-term rates, attendees say a bigger topic of conversation at the central bank’s confab was the alarming march higher in long-term rates, here and around the world.

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The yield on the 30-year Japanese government bond BX: TMBMKJP-30Y is now 3.2%. That is almost 10 times — yes, really — the rate it hit in early 2019, when it was 0.35%. Interest rates on long-term British Treasury bonds BX: TMBMKGB-30Y, known as gilts, just hit their highest levels since 1998. Rates are higher across the board.

And then, most ominous of all, is the United States.

Recent jobs data show the economy is slowing sharply. The data were so bad that President Donald Trump fired the person compiling the numbers. Powell has at last signaled he is open to cutting short-term rates at the Fed’s meeting next month. And the long-term bond yield? Along with those in the rest of the world, it’s been rising, not falling. At 4.9%, the yield on the 30-year bond BX: TMUBMUSD30Y is higher than it was just a couple of weeks ago and much higher than it was a year ago, when it was a mere 4.1%.

Powell, economists and investors already know that the Fed doesn’t control long-term interest rates, only short-term ones. Just wait until Trump finds out.

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There’s no great mystery to this. Interest rates are rising because governments around the world are running massive deficits every month. They need to borrow that money from somewhere, and they have to keep upping the interest rate to woo lenders.

Consider: The United States government is now borrowing $160 billion a month, a staggering and ridiculous sum that defies human understanding. Maybe this makes it more real: That works out to around $1,200 per American household. Per month. Oh, and don’t worry: Thanks to the One Big Beautiful Bill Act, next year it’s expected to rise to $1,400 a month.

As Lt. Frank Drebin of “Police Squad” declared while standing in front of an exploding fireworks factory: Nothing to see here, folks. Please disperse.

No wonder investors are stampeding away from the U.S. dollar and toward almost anything else, from gold to dogecoin.

Sadly, despite the best protestations of many financial gurus, the stock market is not insulated from the bond market. Money you lend to Uncle Sam is money you cannot also invest in the stock market. The actual purpose of higher rates is to persuade investors to lend money to the government instead of doing something else with it — like buying stocks.

As usual, do the math. The interest rate on long-term Treasury bonds is now four times the dividend yield on the stock market, meaning bonds will pay you four times the income.

Albert Edwards, head of global strategy at investment bank SG Securities, points out that this ratio is the highest it has been in a quarter-century.

Hard to believe, but at one point during the pandemic, the dividend yield on the market was actually higher than the coupon yield on long-term bonds.

The last time bonds paid you four times as much as stock dividends was during the giant stock-market bubble around the turn of the millennium. What happened next? Stocks fell by about half. (Bonds also rose.)

If you trust the inflation data from the newly MAGA-tized Bureau of Labor Statistics, you can earn more from long-term Treasury inflation-protected securities, or TIPS. They pay up to 2.6% a year plus a principal adjustment to match inflation, which is currently, officially, 2.7% a year. But don’t be astonished if that official rate soon collapses toward the supposedly true 0% rate proclaimed by Trump.

Edwards writes: “Surely we can all agree that rising bond yields will break the equity market at some point? But when?”

OK, comparing stocks and bonds is not a perfect apples-to-apples comparison. With stocks, dividends are only part of the story. Companies also create value for stockholders by spending money on stock buybacks and on reinvesting in the business. And stock dividends typically rise over time, while the coupons on nominal bonds are fixed (those on TIPS rise, but only with inflation).

But it’s still a useful yardstick. Anyway, the U.S. stock market now trades at about 24 times forecast per-share earnings — or, to phrase the same thing differently, it sports an earnings yield of just over 4%.

In other words, even the full earnings yield on stocks — counting not only dividends but all net income — is considerably less than the coupon yield on long-term bonds.

U.S. large-company stocks have almost never been this expensive. During the long Wall Street boom last decade, we were told that high stock prices were justified, in large part, by desperately low bond yields. What will Wall Street say now that bond yields are much, much higher — and stocks are even more expensive?

Here’s a clue. A leading economics expert, a professor from Yale, has reassured everyone that despite talk of a stock-market bubble, the market is not going to crash. On the contrary, he says, it has reached “a permanently high plateau.” And while some naysayers are worrying publicly about supposedly lofty valuations, ordinary investors shouldn’t be concerned, he says. Those high valuations are fully justified by booming corporate earnings. He expects “to see the stock market a good deal higher than it is today, within a few months.”

The bad news? As Edwards points out to his clients — linking to the contemporaneous New York Times article reporting these remarks — these statements aren’t recent. They were made by Yale economics professor Irving Fisher — on Oct. 16, 1929. Oops.

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