Massive Bond Exodus to Start ’22Whilst we are just one week into the new year - the selling in bonds has been nothing shy of ferocious. A combination of red-hot inflation (more to come with CPI this week) and a hawkish Fed has sent bond investors racing for the exits - sending yields (and rates) sharply higher.
It’s All About the Fed… Nothing has a greater impact on financial risk assets than the availability of liquidity and its price. Rate hikes are coming - it's just how many and how fast?
Hot CPI Priced In… But are 3 Rate Hikes for ’22?Friday we learned US CPI hit 6.8% year-on-year for the month of November. Here's the thing: there is an entire generation of people have never experienced 'sticker shock' like this in their adult lives.
Reaction in Bond Yields to Tell CPI Story…Ready for higher rates? They are coming. Higher rates will equal a stronger dollar -- which will pressure global markets and particularly emerging market debt.
Turbulent Times AheadCPI is expected to jump above the annual pace of 6.2%... the hottest in 30 years. Makes sense to me - the Fed has expanding its balance sheet to $9T and real rates remain negative - why wouldn't we see inflation? It's going higher.
Is this 40-Year Inflation Trend Over? When it comes to inflation, I continue to pay attention to the 5-Year, 5-Year Forward expectations... which trade at a very modest 2.33%. And whilst inflationary pressure will not ease a great deal over the coming 12+ months (maybe longer) - beyond that the market sees mean reversion.
No Recession Risk. But there’s a $4T Elephant in the Room. How to Play ItMarkets continue to climb the so-called 'wall of worry'. The S&P 500 put in its first negative week since the week ending Sept 17th. From mine, I think the market finds technical resistance around this zone (e.g. 4700 to 4800).
6.2% YoY CPI… Nice Work Fed!Inflation is easy to explain: it's excess money chasing too few goods. Milton Friedman put it like this: "it has always been (and always will be) a monetary problem". To that end, look no further than the Fed with money creation.
Fed Gives ‘Green Light’ to SpeculatorsYesterday my closing comment was "... my feeling is the Fed will not want to knock equities off balance". True to form - they didn't. The most dovish Fed President in history delivered exactly the words the market wanted to hear. i.e., the tab remains open.
Fed’s Inflation Gauge Hits Fresh 30-Yr HighInflation is ripping higher and the Fed are acting like a dear in the headlights. All the whilst, today marks the sixth consecutive quarter in which the bottom-up EPS estimate increased during the first month of the quarter... a record. There's a lot of cheap money around - but it's coming at a cost; i.e. inflation
