Pictures show the answer is shockingly little.
Oil vs Yields Key Points
- There is little if any correlation between the price of oil and long-term treasury yields.
- There is little if any correlation between the price of oil and the Fed Funds Rate
- The secular bull market in long-term bonds is over
Price of Oil vs Treasury Yields and Fed Funds Rate Detail
Detail Key Points
- The Fed ignored bond market pressures, the CPI, and PCE holding the Fed Funds Rate at zero, too low, too long.
- The Fed adhered to its preposterous forward guidance and kept up QE when it was obvious to the world an inflationary inferno was building.
- In Late 2022, long-term bond yields kept rising despite dramatically declining oil prices.
- Over the long haul, there has been little if any correlation between the price of oil and treasury yields. At times they are correlated and at times not.
Current State of Affairs Interpretation
- The bond market does not believe in oil-price disinflation.
- Why should anyone else?
These charts put a further spotlight on numerous Fed errors, ridiculous reliance on forward guidance, QE to infinity, and paying interest on reserves to force the Fed’s view on the market.
It also suggest the Fed should pay more attention to signals from the bond market about being behind the curve instead of setting targets based on what the Fed wants to believe.
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why so angry? https://www.instagram.com/reels/DZx5DWCvEV3/
BREAKING: Jack Keane and Marc Thiessen trying to convince Trump & Friends to use B83 1.2 mega-ton nuclear bomb on Tehran. 80X the device used on Nagaski.
Hormuz closed. Israel isnt going to stop shooting at Lebanon.
Misc metaphors:
If one leg of a three-legged stool buckles, he whole thing goes down.In physics, a three-body problem is vastly tougher to resolve than a two-body one.Israel, Iran and the USA are wobbling and staggering around like the mobile, living, evasive, animate croquet hoops in the Alice story. But they are not even moving in accord with one mad queen, but rather, with three cantankerous governance sources. Trump can’t pretend it is a neat set of two goal posts or hoops.
Tanker owners still reluctant to send ships through the Strait of HormuzVessel tracking data shows that only a small number of vessels are running the gauntlet as too much uncertainty remains
https://www.tradewindsnews.com/tankers/tanker-owners-still-reluctant-to-send-ships-through-the-strait-of-hormuz/2-1-2006524
What if they threw a strait-opening party and no insurer showed up?
Interesting eye opener and no mention of Trump. I know that Trump brings the eyeballs, comments and footprint but it’s so refreshing to have pure economic analysis.
You MAGA cult guys beg Mish for economic non-Trump posts and when he does it, the first thing you do is post a comment about Trump.
it’s a cult today. after donald epstein dies in the future, it will morph into a religion. not a doubt in my mind. study anthropology for a few years and learn about human primate behavior. it’s fascinating to watch a con man from queens create a wonderfully funny cult. cage match last weekend was the latest funny episode. the church or trump will be around for centuries. will be studied at university too. what a time to be alive. idiocracy in 3D
All this war experience, institutional and collective achievement is melting away, and more primal pseudo-religious/cultic instincts are surging up, just in time for social media as a superspreader.
aye aye
When Congress and voters are completely fine with concentrating power and abdicating everything to one person, yes the stories will almost always be about that person when we talk about results. He has put every last thing under his thumb, so when shit goes sideways, how could Mish not refer to the person who controls literally ALL of it.
Decades of concentration of government power into the executive branch have led to this moment. The book Trajectory of Power summarizes it. Trump pounced (brilliantly, creatively, I admit) on a very interesting moment amidst various trends and opportunities. But we will of course see frantic efforts in comments to keep categories in the little self-confirming boxes and flow charts that are comforting to some observers.
Trump has transgressed so many norms, institutions and law, with global impact, it is impossible to disentangle him from current events in any discipline.
Not as much as interest rates affect oil futures.
I’ll never forget when I started as a Broker at a Bond Shop in 1984. Rates were just coming off the big secular top. I was showing out some “AAA” Insured TAX-Free Zero-Coupon 20ish yrs bonds. (Turns out they’d get called way early due to refis in a couple yrs.)
What I won’t forget is the one prospect with a little money said the ‘11.15% Tax-Free Zero bond I was showing him he said “to call him back to buy some when they got back up to 11.25%”. 41 YEARS LATER AND WE NEVER CAME BACK UP THAT MEASELY 10 BASIS POINTS!
A lesson I’ve never forgotten – do NOT set absolute targets in general. EASE INTO AND OUT OF POSITIONS. Position size should be commensurate with conviction. He had NO REASON to have ANY conviction about his ’10 bps higher target”. You’ll near NEVER hit the exact high or low so scale in, and scale out.
Keeping that correlation b/tn size and objectivity about conviction is the way to go. And how Buffet does with his longer term holdings – w/o expressing it as such.
You do not show the changes in the price of oil vs inflation. That relation is stronger than the relationship between changes in money aggregates and inflation. If anything, this shows that the relationship between inflation and interest rates is non existent.
The obsession with the idea that the Fed can control inflation with interest rates makes everyone blind to the fact that inflation today has more to do with Citizens United than with the Fed. We have more concentrated industries with great pricing power, and great power to suppress wages. The proof is that companies made a fortune during the 2020 inflation.
You can raise rates as much as you want, but it will not bring down healthcare inflation a bit: healthcare is a racket, it does not care about le level of demand. Besides, people do not borrow to buy healthcare, not yet at least.
We have a tsunami of inflation because of the war on globalization and because of irresponsible foreign policy. Time to stop blaming the Fed and start looking somewhere else to fix inflation.
Grab some free CFA Curriculm notes on the net and read some summaries on the main “Yield-Curve Theories”. (Say 3-5 main ones.) They’re interesting. All have some validity And explain a good amount of why rates AFTER say 18 month maturites (<18 mo + <45 day weighted – Mty is Money Market material influenced by Fed Targets. LATER MATURITIES have many competing influences of varying significance at any point in time.
The sum of all these things is the Vox Populi that adds about to Consensus Mkt Sentimant and changes is mkt clearing prices at any point in time.
re: “That relation is stronger than the relationship between changes in money aggregates and inflation”
No, and I don’t know anybody that can define money. And no money figure standing alone is adequate as a guidepost for monetary policy. Money flows, the volume and velocity of money, went down 80 percent from Jan. 2013 to Jan. 2016. Oil went down 70 percent.
Money is the measure of liquidity (bank debits), the yardstick by which the liquidity of all other assets is measured. See the .G.6 release
https://fraser.stlouisfed.org/files/docs/releases/g6comm/g6_19961023.pdf
I think Warsh’s stopping forwsrd guidance and his explanation that markets should do their job instead of just self fulfilling the Fed’s analysis is one of the most positive things to happen in a LONG time
The business of just following the fed analysis just creates a big circle jerk and everything becomes correlated to the latest Fed prognostication
So once that happens it’ll be really clear there is no correlation – and the banker class will have to do their jobs and earn their money. I predict alot of wheat/ chaff separation
The second policy should be no negative interest rate policy, ever.
Inflation measurement being what it is.
Wow, now lowering the price of oil isn’t good? Cheaper fertilizer is bad now? Cheaper operation on farms is not a good thing? Dang, after Trump was crucified for high oil prices … now they come down and we hear it doesn’t matter. Hmmm..
You really should read the article before you get your undies in a bunch…
After your comment, I reread the article looking for where Mish said lower gas prices don’t matter and didn’t find it.
Meh…