Despite all the economic cheerleading about the allegedly strengthening economy, I see things differently. Job growth is shrinking. Average the last two months to smooth out the hurricanes and you get growth job growth of 114,000. For now, it’s still positive.
Household formation is the weakest since 2010.
Hooray, autos rebounded. However, 100% of that rebound is due to hurricane replacement. It won’t last.
Rental Vacancies Are Rising. What will that do to new apartment construction?
What growth we have is due to a diminishing savings rate . That’s another hurricane aspect that won’t last.
Construction Spending Shows Serious Signs of Rolling Over.
What Do You Believe?
The stock market and the 30-Year long bond yield are at odds. I believe the long bond. If the economy was truly strengthening, the yield on the long bond would not be acting like it is.
We are one recession away from a new record low yield on the long bond, and it’s coming.
Mike “Mish” Shedlock
I have not seen any data on significant rises in apartment vacancy rates. And the only area it is rising at all is the Class A high end apartments (which is all they have built this cycle). There is still a huge issue with enough affordable housing in the U.S. But developers cannot build affordable housing and make it pencil with land costs + regulation + labor costs. So I do not see rental vacancies going up much. But if they built too much Class A and can’t pencil building Class B or C, I guess apartment construction could fall. But single-family home construction will probably pick up as millennials form new households.
Hoisington Investment Management Company focuses on long-term investment strategies that utilize only U.S. Treasury securities. With customers like pensions and insurance companies that are obligated to hold a large portion in treasuries, I’m sure they have no reason to talk their book.
Mish – Comments on the Great QE unwind that has just begun? It is about a month old now. And the effects on Long Term bonds (say 6 months from now when it really gets underway)?
I agree with Misch. As long as the government continues to run huge deficits, the market will be flooded with treasury bonds and printed money. All that printed/created money creates lower interest rates. I expect stocks to continue to rally and rates to remain low given the comparable yields on bonds and stocks. At least until the fed ceases to be a market for treasury securities. If that happens, all bets are off.
Treasuries, along with precious metals, are one of the few remaining asset classes that is negatively correlated to risk assets like stocks, REITs, high yield bonds, etc. If we ever have a prolonged risk off move or a recession, there will be an avalanche of money, both foreign and domestic, trying to get into one of these rare safe harbors. I think yields will ultimately go negative far out onto the Treasury yield curve in this scenario, perhaps even to the 10 year note.
It’s all in the timing.
The dollar and US Treasuries will be one of the “last men standing” before they too, topple.
It’s merely a question of which dominoes topple first.
Who do you think will want to hold 30 yr govt paper as the world learns the world’s govt’s have no clothes? – How about the best-run government bond fund in the world – Hoisington – Lacy Hunt
The stock market and the 30-Year long bond yield are at NOT at odds, if one realizes that foreign capital flight is parking in dollar-based assets, and it has little to do with the economy. Stocks are not constantly hitting new highs because the economy is breaking out, it’s because the rest of the world is breaking down, and the big money is not going to be stuck holding euros or yen. All the dollar haters (gold promoters) have been preaching run away inflation with QE, forgetting there is a world outside the US and confidence is the determining factor. We are one recession away from Sovereign defaults, a rising dollar, more foreign defaults, and the potential default of the ECB, which will lead to an emergency G20 meeting to save govt’s and banks. Who do you think will want to hold 30 yr govt paper as the world learns the world’s govt’s have no clothes?