It seems like the punchline to all my jokes nowadays is: “…and so that’s what Goldman Sachs told their clients to do, haha” (Ba-dum-tshhh!)
But seriously, folks, late last year the Squid was forecasting four Fed rate hikes in 2016. Earlier this year, that number dropped to three, and then in May it fell to two. Fast-forward to now and they’re calling for a 40% chance of…wait for it…a single rate hike this year…in December! Maybe! But like I said in May, that’s still too optimistic, Squid! It’s time to start forecasting the first rate CUT, haha.
By the way, in a follow up note Goldman also cut its US growth forecast for the second half of the year, but then, you already knew that. Thank you, Goldman Sachs, for all the memories and the laughs…
I used to read Murray Rothbard in college, so I'm sympathetic what you're saying. But we're stuck in the reality we've been given, so I invest accordingly. My fundamental thesis is that we're burdened by a severely over-indebted economy, and everything the Fed does (or will do) is counter--productive and will only make things worse...so we're doomed to slow growth, low interest rates, and extreme susceptibility to every little crisis that happens to pass our way.
Real wealth is created through hard work, innovation, increased productivity and real wage growth. The illusionary wealth I referred to in the other thread is the kind created from financial engineering (debt-funded stock buybacks, for example) and Fed-inspired asset inflation (fueled by artificially low borrowing costs). This kind of wealth can evaporate quickly, just as we saw today. You can’t solve a debt problem with more debt, but our clueless Fed just doesn’t get it.
Wow, if the Brexit vote continues as we're seeing here at midnight, we could easily see a 5% pop in TLT tomorrow...
The Brexit vote so far has been far closer than most expected. Maybe somebody already knew something before our close?
The latest academic research on the subject indicates that the “wealth effect”, if it even really exists, amounts to less than one cent of increased personal consumption per $1.00 increase in wealth. Lacy Hunt has pointed out the inherent logical flaw: If a person wishes to increase spending based on an appreciated asset, he has two options: 1) sell the asset, capture the gain and buy something else; or 2) borrow against the asset. In the first instance, money balances increase for the seller, but fall for the buyer. In the second instance, the accumulation of debt simply accelerates future consumption, so there is no net gain. It’s all an illusion!
Depends on your time horizon. If the “Brexit” doesn’t happen, I could see a relief rally in stocks and a sell-off in bonds, so it tactically might make sense to sell around the time of the vote. Contrary to what some have said here, hedge funds are still massively short 10Y+ Treasuries, so there’s likely a short squeeze happening at the moment.
I’m not a trader, though, and will likely stick it out due to my longer term thesis, which is that the global economy will continue to weaken and rates will continue to fall. I was re-reading Lacy Hunt’s 2Q 2014 quarterly report the other day, in which he casually mentions at the end that the yield on the 30Y could drop to the range of 1.7% to 2.3% “over the next several years”. Nothing goes in a straight line, but Lacy is looking more and more prescient by the day.
It’s no longer just a sovereign debt story. Per Tradeweb, about 16% of European investment grade corporate debt is now yielding below zero. The total, about $3.1 trillion notional, is triple the amount at the beginning of May. And as a reminder, close to $11 trillion of government debt (Euro-zone and Japan) now has a negative yield. In the land of the blind, the one-eyed man (the US Treasury market) is king.
Are you talking about Bill Gross, the guy who called the end of the bull market in bonds back in 2011? And then again in 2013? That guy? I keep trying to tell you he posts over at the TBT board now. You should join him.
I can’t tell if you don’t bother to read the articles you cite, or if you just don’t understand them. Commerzbank said it was considering storing cash in vaults rather than depositing it with the ECB and getting a negative return on its cash. I suspect CBK is still loaded up with Euro sovereigns and corporates (and probably USTs), as they’ve been issuing bullish notes on bonds for months. Even with a negative yield, there’s at least the potential for a positive return if the value of the bond keeps going up. A negative yield on a deposit, though, is just that, a guaranteed negative return.
There's no clear correlation between nominal interest rates and the dollar. If you are somehow trading on that basis, you are flying blind (as usual).
Did you not read the Soros story in the WSJ today? He said he's concerned that continued weakness in China will exert "deflationary pressure - a damaging spiral of falling wages and prices - on the US and global economies." That's a bullish scenario for long term UST's, if ever I've heard one.
The Fed doesn’t want a 2.5% yield on the Long Bond (nor the 2.25% that we’ll eventually see) because it points to their policy error. They’ve desperately tried to create sustainable inflation and growth and failed. Inflation is the only way the over-indebted system can save itself, but the clueless central bankers of the world don’t understand that their policies are collectively deflationary and anti-growth. When we see QE4 next year, watch the yield on the 30Y magically increase 100 bps, just like it did during QE1, QE2 and QE3. And for anyone who doesn’t understand that QE4 will be the signal to sell, they shouldn’t be playing in the bond market.
Your time would be better spent watching the German bund. Two-thirds of German bunds are now negative-yielding (with negative yields out to 9 year maturities). JP Morgan is forecasting that the yield on the 10Y bund will fall below zero in the coming weeks (it's now yielding around 5 bps). The 10Y UST has been tied at the hip to the 10Y bund for at least the past 18 months.
Since early 2009, the 2.5% level has acted as major support for 30Y yields. It hit there in 2009, 2012, 2015 (briefly dropping down to the 2.25% level in late January of that year), and now 2016. If you look at a chart of 30Y yields for the past 7 years, you’ll see a series of lower highs and lower lows, exactly as one would expect in a severely over-indebted economy. One of these days, though, I fully expect the yield on the 30Y to crash through the 2.50% support, and then start testing the 2.25% level.
This is starting to remind me of 2014, when anyone dumb enough to stay in TBT for the entire year lost 40% of their money. It could be worse, though. The morons in TMV (the triple inverse bond fund) are down 30% YTD...
Bill Gross famously declared the end of the three decade bull market in bonds back in 2011. He said that the end of QE2 was going to be "d-day" for the bond market, and so PIMCO sold all of its USTs. Every single one of them, haha. The bond market famously rallied after QE2, PIMCO massively under-performed its peers that year, and so ended the reign of the so-called "bond king".
Bill Gross is the biggest dummy in the bond market, yet some people continue to listen to him, lol