Due to Federal Reserve Beige Book regional reports, investors increasingly believe the Fed will go on a rate hike spree this year.
CME Fedwatch sees things this way.
Talk of $100 Oil
Fun New Narrative
When We All Believe the Same Thing
That’s my “Tweet of the Day”
Consumer Confidence
Market in Turmoil
Stagflation Anyone?
Inflation Scare
This is the same thing that happened in 2008. When oil hit $140, I recall comments like “Next stop $200, then $300”.
The same sentiment is in play right now. Nearly everyone is convinced that the inflation bet is a “sure thing”.
Atwater provides a study in psychology. Others look at fundamentals:Trade wars and rate hikes will slow the already slowing the global economy. We are near the end of this cycle.
- Saxo Bank Quarterly Outlook: End of a Cycle Like No Other
- Fed’s Beige Book Notes “Dramatic” Increases in Prices Due to Tariffs
- Germany Recession Indicator Flashes Yellow (Median Possibility 32%)
Lacy Hunt at Hoisington Management is fully invested in Treasuries with an average duration of a bit over 20 years. For details, please see The Name is Bond, Long Bond.
I side with Lacy.
Mike “Mish” Shedlock
Who is everyone, and what are they saying that makes you believe they are betting on inflation? If they think raising rates is an indicator of inflation, they are wrong.
“Nearly everyone is convinced that the inflation bet is a “sure thing”.
So is the fed now artificially going to raise rates? Or is it artificial if they are only going down?
@Shamrock:
Debt SERVICE is not the same as debt. The two big trends in virtually all consumer finance over the past decade, have been longer loan terms and lower interest rates. Both of which allow more debt for any given level of service.
After sacrificing savers and pension funds for 7 yrs, now the priority is postponing the pension crisis at the expense of debt, especially overseas. How are rates not going to rise as the risk of sovereign debt default rises?
What categories of debt is this made up of? Do you know if this includes student debt?
Tax Inflation is here. My property appraisal: up 10%. I’m not alone. http://www.businessinsider.com/9-us-cities-where-a-new-housing-bubble-may-be-forming-2018-2 Watch in amazement as the Bigly Assets get bigger. And avoid looking directly at any approaching Big Busts.
This will be fun when Oil hits $100 and California’s new gas tax adding increased prices we might see $6-7 gallon gas.
Household debt as a percent of disposable income is way down from 18.14 in 2007q4 to 15.87 2017q4. https://www.federalreserve.gov/releases/housedebt/
Not only does it get rolled over, a huge percentage of it is variable rate. It won’t take more than two or three more rate hikes (and a little more commodity inflation – especially oil) before the bottom “unexpectedly” falls out.
The Fed is desperate to get as far above zero bound as quickly as they can. As in prior cycles, they have waited FAR, FAR too long to tighten and will now be raising rates until the economy breaks – probably no more than two or three 25bps increases from now.
Mish – I think you are right. If you are not, I would like one of your critics to please explain how we are going to have this degree of rate increase with the current massive amount of debt – consumer, government and commercial. My understanding is that much of this debt is rolled over and if that’s true it will be rolled over at higher rates. If I am wrong, can someone please educate me?
The FED wants to tank the markets before the mid-term elections.