Here are some amusing predictions.
No Such Thing As Lines in the Sand
Note to Bill Gross, MarketWatch, the Edelson Institute, the Financial Times, Jeffrey Gundlach, Heritage Capital, and numerous other forecasters not caught up in that precise search: The is no such thing such as a line in the sand that when breached cannot be crossed back.
Technical lines in the sand are one thing and fundamentals another. This is not like nuclear war which cannot be reversed.
The same people have been calling for the the end of the bond bull market for a decade. Perhaps they have it right, but the fundamentals suggest otherwise.
The economy is slowing and the Fed is hiking. The stock market is likely headed for another bust. There is a new worry in Europe. China is slowing.
Yes, we have late stage inflation, but so what?
There is no magic line in the sand. Neither the economy nor the bond market work that way.
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Treasury bears, please note that asset bubble burstings are inherently deflationary. If you think an asset bubble burst is likely, then you should believe that treasury yields will sink.
Of course, if you think the economy is on the verge of overheating, be my guest, short treasuries.
Mike “Mish” Shedlock
Well bully for you.
Treasury bears are
getting mauled today.
You’re wrong. You can now get 1.7% savings accounts which was unheard of in ZIRP.
The “safety” of sovereign bonds, is never absolute. But it is an implied promise that the sovereign will confiscate every single penny of every alternative asset it can get its hands on, in order to stave off default on its own bonds. Making sovereigns, relatively, safer than any other investment, for any person, and asset, the sovereign has the power to shake down, and confiscate, at will.
At some point (Venezuela) there’s nothing left to confiscate, and the whole relative safety racket no longer amounts to anything practical. But by then, as in Venezuela, every asset (including tshirts, drinking water and cans of baby formula) will have been confiscated in order to keep the sovereign bond safety illusion afloat for as long as possible.
IOW, the notion that one can “hide out” in assets “safer” than sovereigns, is simply an implied bet that one’s asset of choice is literally beyond the grasp of ones sovereign (Dual citizenship and Florida real estate in the case of Venezuelans.) When one’s sovereign is a superpower with global reach, and zero compunction about schlepping one off to Gitmo on whatever trumped up charge meets the low bar of serving as hobgoblin-du-jour for it’s hapless indoctrinati,……..
MISH,
No trend in the market moves in a straight line; however, nice round numbers attract attention. So yes, 3.0% is a nice round number. It also happens to be a clear break of a 30+ year upper downtrend channel in yields. Breaking that trendline is actually more significant than the yield or price at which it occurred.
Bonds sell due to margin calls, fear of inflation, and fear of default. In a heavily leveraged system, a default in one asset class causes margin calls and eventually fear that ripple across other asset classes. 10 yr US bonds are not “safe”.
This tightening cycle will be FAR more abbreviated than Gundlach or Gross think.
Something EVERYONE fails to notice is that this tightening cycle is historically unique, in that banks are passing exactly NONE of the higher rates along to their depositors. This has NEVER been the case in the past. It is ALL 100% of it being sucked out of the economy in the form of higher borrowing costs, without ONE CENT of “stimulus” offset on the deposit side.