The new US Treasury Secretary – Scott Bessent – is focused on the right goal. He wants a lower US 10-year yield. The former Hedge Fund manager knows how important a lower US 10-year treasury is to the growth of the economy (and the government). His direct language reflects a reality – as most people don’t borrow at the short end (i.e., the rate set by the Fed)
Commodities
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Decoding the Drop in Oil
Middle East tensions are rising. However, oil prices are dropping. Why? The Israeli missile attacks on Iran, while not entirely unforeseen, triggered a negative response in the oil market. Now this may seem curious… contrary to expectations of a price surge due to heightened geopolitical tensions, crude oil prices plunged ~5%. In short, market sentiment tends to prioritize economic supply and demand concerns over (short-term) geopolitical risks
Are Commodities Telling Us Something?
Forecasting things like (not limited to) GDP growth, unemployment and inflation is tricky business. Very few get it consistently right (especially policy makers). And whilst macro forecasting is generally a fool’s errand – there are things we can observe to improve our probabilities of success (or at least reduce our risk). Consider inflation… whilst not perfect – there are a set of reasonably strong correlations which exist over extended periods. And it’s these types of correlations we can use to our advantage.As I will demonstrate – over the past 5 decades (after the US dollar removed its peg to gold in 1971) – inflation levels have largely correlated to what we see with commodity prices.