Or a bull market in dollars?
Having written on several occasions on the deep and extended treasury yield curve inversion, most recently in Treasury Yield Curve Uninverts, I think it timely to point out that the yield curve, as measured by the 1-10 year pair, is solidly positive. Yesterday the one year yield was 4.30% and the ten year 4.50%.
Among the potentially actionable implications is a bear market in stocks. By itself, the crash since the December 9 intraday top, culminating in yesterday’s 1000+ point plunge, might not be especially noteworthy, but in the context of the evolution of the yield curve, it could turn out to be the opening salvo of a bear market.
As also noted on numerous occasions, the media’s bullish spin on Fed rate cuts is more than a little selective, if not outright propaganda. The Fed cut rates all through the last two major bear markets in 2000-2002 & 2007-2009, during both of which stock prices were about cut in half. Given extreme overvaluations, especially in trendy teracap tech, a decline of similar magnitude couldn’t be ruled out.
My use of the word “watch” is considered, after the meteorological convention indicating that conditions are ripe for an event, but do not assure it. No such forecast is ever certain, but it has so far and could continue to be broader than stocks, affecting commodities, even gold, and possibly most bonds. We could call it a bull market in dollars, that is, a deflationary event. If this were to turn out to be the case, an overweight in USD and short term UST would be prudent.
Bear in mind that, as Wolf Richter so eloquently says, nothing goes to heck in a straight line. Despite a valiant attempt to do just that yesterday afternoon, the market managed to get its head above water a bit today, and a sharp reflex rally could come at any time. This especially after a first in several decades string of ten consecutive daily losses in the venerable Dow Jones Industrials. Nimble traders might still profitably buy the dips, but selling rips might better suit most.
Or looked at the other way around, buying dollars.
Trump is telling Europe BUY US OIL ($) or face tarffits
News not good My Mum (92) is in hospital………it looks very bad. She thought she had an heart attack last Sat night, turns out not…………but for some reason her immune system has totally collapsed. They no idea why, no cancers or tumors…..in short the net infection will kill her…
Mike
Our thoughts and prayers, Mike.
Thank you
nothing much likely to happen now to monday…………..
getting back to things our beloved “Dear leader” has let it slip that the powers to be told him that his best course is to allow a “managed decline” of the UK……………..but no he wants to go for “growth”
If it works anything like it does here, I wouldn’t get excited about going for “growth” either. It usually means inflation … fiscal and monetary stimulus, which only looks like growth at first. The first to inflate are asset prices and profits, which, because of the myopic view of inflation, isn’t recognized as such. Ultimately it works its way to goods and services, and only then is the “growth” recognized as inflation. Policy tightens, “growth” flags, leading to renewed calls for “growth”. Rinse and repeat. True growth arises from economic freedom and technological advance, things governments aren’t very good at.
going for growth in the uk while choosing to follow germany’s disastrous energy policies is a contradiction.
You can say that again!
https://news.sky.com/story/bank-of-england-governor-to-join-reeves-on-key-china-visit-13277644
Begging?
Trump wont like it
Bye Bye Germany
https://www.youtube.com/watch?v=WzukY91Q-y4
The stock rally we anticipated has come to pass, but it remains thin. The majority of stocks continue to underperform the teracap dominated averages; not only has the Russell 2000 been underperforming but the Dow 30 as well. This extends to underperformance by the rest of the world versus the US as well. Not without reason, but reasons change. For now, the dollar is taking a breather and most other assets are rising, a trend more likely than not to sustain through the holidays … will Santa come to Broad and Wall …
Merry Christmas!🎄
Mum has discharged herself from hospital………i got tablets to teat her infection but its not looking good. I care for her but this will be over in a few days……..without an immune system its hopeless…………
finster, are you concerned that you’re not really diversified? the mag7 are 22% of the msci all world index, and 30% of the s&p. “passive” doesn’t seem so passive anymore.
Not really, JK. My allocation is pretty much in line with the 18:18:32:32 model on the Model Portfolios page, aside from a temporary tactical overweight to short term UST mostly at the expense of equities. Check the link for a more in depth description, but the equity portion is quite a bit flatter than a cap weighted distribution, weighted more according to dividends, quality and value. Mag7 are closer to around 10% of equities, maybe 5% of the total portfolio.
Mum still alive, hard to say if she recover or not…….
https://www.zerohedge.com/political/democrats-rewrite-history-praise-jimmy-carter
Best wishes to her and you Mike!
Mum making some progress…………….one day at a time.
https://x.com/Megatron_ron/status/1877105063493075303?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet
Let me see did the local government ban control burning?
Mike
Good to hear your mum is doing better, Mike. 💭🙏
HMMMm……………..just looking at the Fire in Holly wood…………..gee didnt they back Gavin & his hard left policy, hire people with the right DEI rather than could do the job……..oh dear…cause 7 effect
bad news in blighty
https://archive.ph/8uBUs#selection-1699.0-1699.53
Well the Santa Claus rally turned out to be a fizzle. Nothing we’ve seen since the post alters my outlook. What’s that saying? If Santa fails to call, bears will come to Broad and Wall?
On a more substantive level, the (lagging) inflation data are the biggest weight on the markets, having shown that the Fed was premature at best in easing, as I’ve been saying all along. The direction and pace of market movement will be heavily affected by these data.
Another factor is the prospect for fiscal restraint. I’ll believe it when I see it, but it’s notable that for the first time in years there is serious talk about getting deficits under control. And the Kalecki Equation says corporate profits are tied to deficits. So fiscal restraint would pressure corporate profits, and by extension, stock prices.
Put this all together with our position in the yield curve cycle, and it seems likely December 9 marked the start of a bear market.