Markets are closed this Monday holiday, so let’s take the opportunity to reassess the outlook. We posted updated Synthetic Systems charts last week and nothing has happened since to change them, and we have a full quarterly update due in a few more days anyway.
Equities are up today overseas and in futures trading. Treasuries and commodities are mildly down, with the exceptions among those I track of platinum and oil.
A few comments on the forecast … the outlook for Bonds and Gold looks pretty attractive. I’m now overweight both. But there is a highly plausible fundamental scenario backing it up as well.
I think the bond market especially is underpricing the policy outlook. The Fed has been very vocal about its determination to quell inflation, and there’s a lot of opinion in the financial arena holding that rates will have to rise much more to get the job done. But here at Financology we have not only SS but the FDI as well, and the latter tells us disinflation is in the pipeline. Likely due to the bond market’s already having done so much heavy lifting on the rates front.
If so bond yields are stretched on the high side and prices on the low side, providing a nice tailwind over the coming months. In addition the belated return to normal rates after years of repression may well unravel some excess leverage and speculation. That could prompt a hasty retreat in rates and a surge in Treasury prices at an unpredictable time.
I don’t tell SS what to think and don’t even have a way to, so when its opinions and mine come into concord, I feel better about both.